NFP GOVERNANCE AND PERFORMANCE STUDY - Examining governance practices and opportunities in Australia's NFP sector

 
NFP GOVERNANCE AND PERFORMANCE STUDY - Examining governance practices and opportunities in Australia's NFP sector
NFP GOVERNANCE
AND PERFORMANCE STUDY
Examining governance practices and opportunities in Australia’s NFP sector
NFP GOVERNANCE AND PERFORMANCE STUDY - Examining governance practices and opportunities in Australia's NFP sector
companydirectors.com.au

Commonwealth Bank
Supporting you and your mission
Commonwealth Bank’s Not-for-                      in which we live and work, both            In this rapidly changing environment,
Profit team are delighted to support              through the Commonwealth Bank Staff        it’s more important than ever to build
the Australian Institute of Company               Community Fund and through enduring        the firm financial foundations necessary
Directors’ NFP Governance and                     partnerships with some of the country’s    for sustainable success over the long
Performance Study 2014, the largest               leading community organisations. In        term. Those challenges have, if anything,
of its kind in Australia. This year’s             fact, Commonwealth Bank has been           become more acute over the last 12
study once again confirms the growing             supporting the organisations that          months. As competition for the
significance and professionalism of               strengthen and sustain our communities     philanthropic dollar has intensified, the
the not-for-profit sector, as well as             for more than 100 years.                   demands on social enterprises from both
the unique challenges not-for-profit                                                         clients and governments have increased,
                                                  We are working to build financial          while the policy framework in which
directors face. To address some of
                                                  capability in the not-for-profit sector,   they operate continues to evolve.
these challenges and continue to drive
                                                  with specialised bankers and banking
excellence in governance in the not-                                                         We hope you find this year’s study
                                                  solutions backed by our team’s deep
for-profit sector, we are also pleased                                                       as revealing and thought-provoking
                                                  expertise. We also draw on the extensive
to announce our involvement as a                                                             as we have. We look forward to the
                                                  resources of the wider Commonwealth
program partner in the new Australian                                                        opportunity to work with many of you
                                                  Bank Group to bring our not-for-profit
Institute of Company Directors’ NFP                                                          in the year ahead.
                                                  customers a range of value-added
Thought Leadership Program.
                                                  programs and opportunities, from events    Vanessa Nolan-Woods
The Bank has a long history of                    and training programs to educational       General Manager – Schools and
supporting the Australian communities             guides and online tools.                   Not-for-Profit, Commonwealth Bank

                                                                                             We would like to thank the
                                                                                             Commonwealth Bank for partnering
                                                                                             on the NFP Governance and
                                                                                             Performance Study 2014.

                                                                                             commbank.com.au/
                                                                                             notforprofitsectorbanking
                                                                                             commbank.com.au/community

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     Contents

 4   FOREWORD BY JOHN H. C. COLVIN FAICD
 5   KEY FINDINGS
 6   NFP GOVERNANCE CONTINUES TO EVOLVE
10   BOARDS TARGET AREAS
     FOR FUTURE DEVELOPMENT
15   COLLABORATION AND MERGERS
     ON THE AGENDA
18   BOARDS WANT BETTER
     PERFORMANCE INDICATORS
20   RELATIONSHIPS BETWEEN
     BOARDS AND CEOS ARE STRONG
23   EDUCATION – STRIVING TO BE
     ‘TOP OF CLASS’
26   AGED CARE RESPONDING
     TO CONSTANT CHANGE
29   DIRECTORS’ CONTRIBUTION IS SIGNIFICANT
32   CERTAINTY IN GOVERNMENT
     POLICY IS NEEDED
35   RESEARCH METHODOLOGY

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                                   Foreword by
                                   John H. C. Colvin
The not-for-profit (NFP) sector is                participated in 2013. These directors are
an essential part of the Australian               highly skilled and experienced and lead
economy and society.                              organisations from small rural community
                                                  groups to national organisations with
In 2012-13, according to ABS
                                                  turnover above $100m.
estimates, there were approximately
57,000 economically significant NFP               In addition to providing insight into
organisations generating over $107bn              the governance of the NFP sector as
a year in income and employing more               a whole, this year the study includes
than one million people – or about                detailed information in three specialist
eight per cent of the workforce.                  areas. For the first time, we examine
                                                  NFP governance from the perspective
The 2014 NFP Governance and
                                                  of senior executives employed by NFP
Performance Study is the largest
                                                  organisations. We also include specific
and most comprehensive source of
                                                  analysis of issues faced by boards in
information on the governance of
                                                  the education and aged care sectors.
these NFP organisations in Australia.
It answers questions about the quality            Company Directors is absolutely
of governance of our NFPs, if this is             committed to providing valuable
changing and how boards can improve               resources for the NFP sector and
further. It examines the complex                  we trust this report will inform
issues of mergers and collaboration,              governance practice into the future.
performance measurement and the
payment of directors, and identifies
the key issues governments should
address in supporting the sector.
In its fourth year as a national study it has
received huge support from the sector.
More than 2,700 current NFP directors             John H. C. Colvin
answered the questionnaire, which is a            Chief Executive Officer
significant increase on the number that           and Managing Director

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2014
Key Findings

1. NFP governance continues to evolve
2. Boards target areas for future development
3. Collaboration and mergers on the agenda
4. Boards want better performance indicators
5. Relationships between boards and CEOs are strong
6. Education – striving to be ‘top of class’
7. Aged care responding to constant change
8. Directors’ contribution is significant
9. Certainty in government policy is needed

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1
NFP governance
continues to evolve
Over 85 per cent of non-executive                                Australian Charities and Not-for-
directors (NEDs) believe that the                                profits Commission Act 2012 that                                     The 2,700 NFP directors
governance of their organisation is                              codified NFP governance requirements
                                                                                                                                      represented in this survey
better now than it was three years                               and subsequently established the
                                                                 Australian Charities and Not-for-profits                             work for NFPs with a
ago. A similar proportion believe the
overall quality of governance in the                             Commission (ACNC).                                                   combined income in
sector has improved.                                                                                                                  2013-14 of over $15bn.
                                                                 This legislation was introduced to
Directors in our focus groups                                    improve public trust and confidence in
commented on the increasing complexity                           the NFP sector, support sustainability
in operating environments and growing                            and innovation and enhance
demands on their organisations and                               transparency and accountability. In
their directors, yet they believe                                addition to these overarching changes,
that their boards had risen to these                             government agencies such as the
challenges. Many of these challenges                             Australian Sports Commission and the
are summarised in this report.                                   Department of Social Services have been
                                                                 actively promoting good governance
Governance of the NFP sector has been                            within their sectors of operation.
under scrutiny by government, the                                Industry bodies, including Company
sector itself and the wider community                            Directors, have been actively conducting
for at least ten years. Some had concerns                        governance education programs and
(or assumed) that NFP governance was                             disseminating support materials.
‘below par’ when compared with that of
                                                                 It is not possible to identify which, if
the for-profit sector.1
                                                                 any, of these activities have resulted in
In 2010, the Productivity Commission                             change, but clearly the collective focus
published its evaluation of the                                  on NFP governance has encouraged
contribution of the NFP sector2,                                 boards and individual directors to reflect
which led to the introduction of the                             on, and improve, their performance.

1
    Our research over four years based on independent evaluations found no evidence that NFP governance is (or was) any worse than that of for-profit organisations of similar size.
2
    Productivity Commission 2010, Contribution of the Not-for-profit Sector, Research Report, Canberra

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NEDs’ views on the quality of governance compared with three years ago
n = 1,911

               86%

                                         12%                        2%

                Better                     Same                     Worse

How boards are                                   is diverse and their time is divided
                                                 between strategy (22 per cent),
spending their time                              managing funding (16 per cent),
The NEDs who responded to our 2014               reviewing performance (14 per cent),
survey are highly experienced in the             risk oversight (13 per cent) and
governance of both NFP and for-profit            compliance (12 per cent).
organisations. Their work for NFPs

Proportion of time spent on governance activities
n = 2,303

                                      9%
                                      Other
                             7%                         22%
                         Succession
                                                        Strategy
                     7%
                     Legal

                     12%                                       16%
                   Compliance                                 Funding

                                13%               14%
                               Risk
                                                  Review
                             oversight
                                                performance

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Governance performance                                          governance standards are still meeting
                                                                basic expectations3.
varies by size of
                                                                Although these results show that
organisation –                                                  the quality of performance varies
suggesting appropriate                                          with income, income is only a proxy
                                                                measure of organisation size and
governance practices
                                                                risk. Governance requirements must
The results from this year’s study                              be commensurate with the nature
confirm that directors’ rating of                               of the activity undertaken and
governance performance varies with                              regardless of size, NFPs operating in
the size of the organisation. Directors                         high-risk areas will need governance
in our focus groups believe that, for                           practices equivalent to much larger
the most part, this reflects the less                           organisations. For example, an
sophisticated governance requirements                           emergency service brigade could
of smaller entities, rather than smaller                        have an income of less than $10,000
entities having governance standards                            per year, yet must have governance
below those necessary to deliver on                             systems that ensure adequate training
their mission or purpose.                                       and supervision of volunteers
                                                                operating in high-risk situations.
The average score of the smallest NFPs
was 5.9 out of 10, indicating that

Directors’ rating of governance performance by NFP income*
n = 2,070
                                                                                                  7.9
                           6.9 7.1 7.3 7.4 7.4
               6.4 6.6 6.7
    5.9

    Under      $100k -   $250k - $500k -         $1m -          $2m -   $5m -   $10m -   $20m -   $50m+
    $100k       $250k     $500k   $1m             $2m            $5m    $10m     $20m     $50m
*Rating out of 10

      Size categories
                                                                                    Per cent of
                                    Income last financial year
                                                                                  directors/NFPs
     Very small                     Less than $250k                                      14%
     Small                          $250k to $1m                                         15%
     Medium                         $1m to $5m                                           26%
     Large                          $5m to $20m                                          22%
     Very Large                     $20m +                                               23%

3
    Scored using a sliding scale with 0 = poor and 10 = good.

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Governance performance                     religion, and business and professional
                                           associations. These results may reflect
is similar across sectors                  variations in the complexity and risk of
Directors’ ratings of governance           operations but also the average size of
performance show only minor                NFPs, which differs considerably.
variation across sectors. The highest      For example, the average annual income
ratings were for organisations             of aged care organisations was $23m
operating in the aged care and             compared with $8.6m for religious
international sectors, and the lowest      organisations and $7.1m for those in
for those in culture and recreation,       the culture and recreation sector.

Directors’ rating of governance performance by sector*
n = 2,086

                                 7.7                                                   7.1
Aged care                                   Social services

                                 7.5                                                  6.8
International                               Environment

                                 7.3                                                  6.8
Health                                      Law, advocacy and politics

                                 7.3                                                  6.7
Research                                    Culture and recreation

                                 7.3                                                  6.6
Philanthropy and volunteering               Religion

                                 7.2                                                  6.4

Development and housing                     Business/professional associations

                                  7.1

Education

*Rating out of 10

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2
Boards target areas
for future development
To further improve governance, half            In the discussion groups these two
of all NEDs and executives believe             board attributes (innovation and risk)      "Our board struggles to be
their boards should focus on attracting        were seen as strongly related.
more highly skilled directors, and 40                                                       innovative really. We have
                                               The largest difference between NEDs’
per cent of executives want further
                                               and executives’ views on priorities for      an older crew, a bit risk
improvement in governance skills.
                                               improvement were related to board            averse – ‘the we haven't
One in five NEDs and 29 per cent of            information. Forty per cent of NEDs
executives want better chairmanship,           believe their board’s performance            done that before' types."
highlighting both the high expectations        would be improved with better
of this role and the need for some             information, whereas this was raised
chairs to further improve their skills or      by only 29 per cent of executives.
performance. One in five NEDs believe          Nonetheless, 29 per cent of executives
their governance would be improved             is a significant proportion (particularly
with a more highly skilled CEO.                as the provision of information to the      “I want my board to
                                               board is a responsibility of executives)
About a third of both NEDs and
                                               and supports the findings in Section 4       challenge me – to give
executives believe their board should
be more innovative and one in five
                                               regarding directors’ desire for better       me ideas.”
                                               measures of performance.
believe it should better manage risk.

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                       Three things that would most improve board performance

                                  53%
                       47%
                                             41%                                 40%
                                                                       35%                             36%
                                                                                            31%
                                                          29%                                                                29%

                                                                                                                21%                                            20%
                                                                                                                                        19%            18%
  NEDs   n = 2,089                                                                                                                             15%

Executives   n = 283
                              More highly
                         skilled directors

                                              Better information for
                                                   decision-making

                                                                         Higher levels of
                                                                        governance skills

                                                                                              More innovation

                                                                                                                  Better chairmanship

                                                                                                                                         More highly

                                                                                                                                                          Better risk
                                                                                                                                         skilled CEO

                                                                                                                                                        management
                            Definitions of terms
                            Non-executive directors (NEDs) are directors who are not paid
                            employees of the organisation.

                            An independent NED is one who is free from any relationship that could
                            materially interfere with the exercise of their judgement.

                            Executives are employees of the organisation but are not voting members
                            of the board.

                            Executive directors are both employees of the organisation and voting
                            members of the board. For example, a CEO or Managing Director may be
                            an executive director.

                            Definitions are not clear among NFP directors. Forty per cent of those
                            classifying themselves as executive directors in the survey were not voting
                            members of the board.

                            In this study, the term ‘executive’ includes both executive directors
                            and executives as they are both employees of the organisation.

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Over a third of NFPs are                                 Nearly half of those implementing

planning to change one or
                                                         changes will be amending their board        “We are moving from an
                                                         structure, for example to change from
more of their governance                                 a representative model to a skills based     Incorporated Association
documents in the next year                               or independent board. Twenty nine            to a Company Limited by
                                                         per cent are revising their mission or
This year’s survey shows the extent                      purpose and a similar number will be         Guarantee mostly because
to which governance structures of                        changing the length of time directors        the Companies Act is a much
NFPs are evolving. Approximately                         can serve on the board.
one third of boards are planning                                                                      more settled law... and we
                                                         Interestingly, 17 per cent of boards
revisions to their organisation’s
                                                         are seeking to change their legal            won’t have to change again.”
constitution (or equivalent document,
                                                         structure. Sixty per cent of NFPs are
such as statement of purpose, rules,
                                                         currently Incorporated Associations,
articles of association) in the next 12
                                                         12 per cent Unincorporated Associations
months. In most cases, this is driven by
                                                         and 14 per cent are Companies Limited
a need to revise outdated procedures;
                                                         by Guarantee. Intention to change legal
improve organisational agility; or
                                                         structure did not appear to be correlated
change mission or purpose in response
                                                         to size.
to changing client needs; or in response
to changing legal obligations.

Planned changes to constitution in the next year
n = 699                                                                                              “The constitution was
                                                                                                      written 20 years ago,
                                                  47%                                                 when we had about 20
                                            Changing board                                            clients and we wanted
                                               structure
                                                                                                      them to be members. Now
                                                                                                      that we have over 350
                                                                                                      clients it’s not functional.”
                                                                                    29%
        34%                                                                    Changing mission
         Other                                                                    or purpose

                                                                                    17%
                                                                                    Changing
     27%                                                                           entity type
Changing length of time
  directors can serve

                                                   8%
                                          Changing charitable
                                             or tax status

Note: Total does not add to 100 per cent due to multiple responses allowed

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   Reasons given for changing the constitution:

    • Moving from a federation of           • Changing the definition of
       state bodies to a single               membership
       national organisation                • Provide greater clarity on
    • Becoming a Company Limited              board governance roles
       by Guarantee                           and responsibilities

    • To reduce directors’ terms on         • General refresh
       the board                            • Remuneration policy of
    • To comply with changes in               directors
       government regulations               • Change to our mission
    • Amalgamation and winding up             or purpose
       of other entities                    • Allowing the CEO to join
                                              the board
    • Tidying up the constitution
       and modernising                      • To enable merger

Boards continue to invest                  • 35 per cent reported that their board
                                             undertook an internal assessment.
in formal professional
                                           • 25 per cent said that they had
development                                  in-house training.
As in previous years, nearly three
                                           • 19 per cent said their board had
quarters of NFP NEDs reported that
                                             an externally facilitated board
their boards had undertaken one or
                                             assessment and the same said
more forms of formal professional
                                             that individual directors had been
development in the last year.
                                             evaluated.
• 37 per cent reported individual
                                           • Only 15 per cent had external
  directors had undertaken
                                             whole-of-board training.
  external training.

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Professional development undertaken in the last year
n = 2,064

37%
                        35%

                                                                                                                                      27%
                                         25%

                                                             19%                            19%
                                                                                                                  15%
External training for
 individual directors

                                                                                            Individual director
                        Internal board
                           assessment

                                         In-house training

                                                             External facilitated
                                                              board assessment

                                                                                                    evaluation

                                                                                                                   External whole-

                                                                                                                                      None
                                                                                                                  of-board training

Medium and large NFPs                                                               cover the basic governance requirements.
                                                                                    Very large organisations have much more
struggle most to provide                                                            complex governance needs but are also
professional development                                                            more likely to have the budget to fund
                                                                                    individual or board PD programs.
There is a clear correlation between
organisational income and the extent                                                However, directors felt that it is the
of formal professional development (PD).                                            medium and large organisations (between
Only half of directors of organisations                                             $1m and $20m income) that struggle
with income below $500,000 stated                                                   most to meet their ongoing needs for
                                                                                    enhancing performance. This group
their boards had undertaken any PD,
                                                                                    can have complex governance needs
and in most cases this was external
                                                                                    but continue to find it very difficult to
training for individual directors or
                                                                                    justify the costs and time requirements
in-house assessment or instruction. In
                                                                                    to stakeholders and even the board itself.
comparison, 90 per cent of those working
                                                                                    There was also a view expressed that the
with very large NFPs said their board
                                                                                    culture of the organisation has a bearing
had undertaken PD and on average they                                               on the acceptability of the board paying
had undertaken twice as many types                                                  for PD. In some organisations, spending
of development programs as the small                                                any money on the board is ‘not done’
organisations.                                                                      and directors are expected to volunteer
Directors in focus groups explained                                                 their time and pay their own expenses,
that small organisations have little or                                             including PD.
no budget for PD, but also less need                                                Some directors also commented that
for advanced governance skills. For this                                            many funders or donors do not want their
audience, there is a need for short, simple                                         resources allocated to these activities and
training sessions and online seminars that                                          this attitude is hard to shift.

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3
Collaboration and
mergers on the agenda
NFPs show a high                                  Two-thirds of directors said their NFP
                                                  works with others to advocate for their
degree of collaboration                           sector or to service beneficiaries, and
Directors attending focus groups                  more than a third have an agreement/
over the last three years have often              memorandum of understanding (MOU) to
commented on the number of NFP                    refer or service clients (this was highest
organisations in Australia, the capacity          among NFPs in the health sector).
of the community to accommodate                   A quarter of directors reported their NFP
so many small entities, and whether               shares resources, such as buildings and
there should be encouragement from                equipment and 18 per cent share back-
government for NFPs to merge. In some             office costs. Over 40 per cent report
sectors, notably aged care, disability and        subcontracting the provision of some
community housing, pressure to merge              services to other NFPs and 15 per cent
is arising from economic factors such as          outsource their back office functions to
staff and infrastructure costs, and costs         another NFP for which they pay a fee.
of compliance.
                                                  There are slightly higher proportions of
This year, we asked directors if their            NFPs collaborating with others among
organisations collaborate with other              organisations with income less than
NFPs, how they collaborate and                    $250,000 and between $2m and $10m.
whether a merger is something they                Collaboration was also highest among
have considered.                                  NFPs operating in the education, health
The results reveal that NFPs are actively         and social services sectors.
collaborating and partnering with other
NFPs to deliver services across the sector.

    Example of how NFPs work collaboratively

    An NFP in the disability sector with a turnover over $30m invests in a new
    accounting and payroll system, and associated staff training.
    It recovers some of this cost by providing ‘fee for service’ bookkeeping
    and/or payroll functions to six NFPs, each with income below $2m.

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Extent of collaboration with other NFPs
n = 1,936

   67%

                             41%
                                                  38%

                                                                            25%
                                                                                                         18%
                                                                                                                                      15%
      We collaborate to
 advocate for the sector
        or beneficiaries

                           We subcontract the
                            provision of some
                            services/products

                                                We have an agreement
                                                 (or MOU) to refer or
                                                       service clients

                                                                               We share resources
                                                                          (e.g. buildings, vehicles,
                                                                                        IT systems)

                                                                                                       We share the cost of some

                                                                                                                                    We outsource back-office
                                                                                                                                         functions for which
                                                                                                           back-office functions
                                                                                                         (e.g. payroll, accounts)

                                                                                                                                                we pay a fee

Mergers are being                                                        in social services, more than 50 per cent
                                                                         said that their board had discussed
discussed by 30 per                                                      a merger. Similarly, over half of the
cent of boards                                                           62 directors of NFPs in development
                                                                         and housing had discussed a merger.
Thirty per cent of directors said their
boards had discussed or taken action                                     The main reasons to consider merger
to merge their NFP with another                                          were to improve existing services,
organisation in the last year. Merger                                    efficiency or broaden the range of
discussions were most common in the                                      services to existing service users. Twenty
large NFPs, particularly those with                                      seven per cent said they had considered
income above $10m or operating in the                                    merger in order to be more attractive to
social services, development or housing                                  funders and 18 per cent in response to
sectors. Of the 259 directors of NFPs                                    encouragement by government.

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Reasons for considering a merger
n = 627

Improve efficiency                                                                      47%
Broaden range of services
to existing services users                                                    40%
Develop/maintain market share,
including reducing competition                                         34%
Increase the number
of people served                                                   32%
Be more attractive to funders                               27%
Not large enough to be
financially sustainable                            20%
Encouraged by government
to merge                                     18%
Changing compliance
requirements or costs                    15%
Other                                  14%

About a quarter of boards                             Several focus group participants had
                                                      recent experience of successful mergers
that discussed merger                                 or were currently involved in merger
expect it will happen                                 negotiations. They believe the key factors
                                                      to achieve success are thorough due
in the next two years                                 diligence investigations prior to beginning
Undertaking a merger of organisations,                initial undertakings, a shared mission
whether for-profit or NFP, is complex,                and/or common beneficiary groups,
expensive and risky. Only a quarter of                sufficient financial resources to support
those that discussed merger, or eight per             change, cultural compatibility, strong
cent of all directors, believe it is likely or        leadership and stakeholder support.
very likely that their organisation                   In many cases, a takeover of a smaller
will complete the transaction.                        enterprise by a much larger one is easier
                                                      to arrange and complete, as are mergers
                                                      strongly supported by a key funder.

Likelihood of merger in the next two years
n = 616
                                                             23%

                16%
 13%                                         13%                           13%           13%

                                 8%
  Very         Unlikely      Somewhat      Undecided        Somewhat       Likely      Very likely
 unlikely                     unlikely                        likely

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4
Boards want better
performance indicators
Measuring mission                              Researchers in the disability, aged care,

effectiveness
                                               homelessness and health sectors have            “It keeps me awake at
                                               long sought definitive measures of
The overall performance of an NFP is           quality of life or wellbeing. Considerable
                                                                                                night. I don't know if
determined by how well it achieves             work has also been completed on ways             what we provide will have
its mission or purpose, yet only 50            to measure social return on investment
per cent of directors believe that their       in order to choose between alternative
                                                                                                an effect in the long run."
organisation measures this effectively.        investment options. These assessment
                                               frameworks have yet to result in
Performance measurement can be
                                               evaluation structures that produce
a complex and enduring problem.
                                               consistent results when used by different
Essentially, NFP boards need two types
                                               evaluators. Further, some NFPs are
of information:
                                               tackling complex problems that do not
1) They need regular operational reports       have established or even agreed solutions
that tell them if the organisation is          to test, or which will take 20 years or
efficient, effective and sustainable.          more to observe substantive change.
Collection and analysis of this information    Others are providing services for which
is straightforward and common to NFP           outcomes may never be quantifiable.
and for-profit organisations, and across       Examples of these NFPs include those
sectors of operation.                          working in overcoming indigenous
2) NFP boards also need information            disadvantage, homelessness, and drug
that tells them if their strategy is           and alcohol abuse and advancing religion.
achieving the organisation’s purpose or        Directors in our focus groups commented
mission. For NFPs with tightly defined         that boards operating in these sectors
missions, or for which results can be          must rely on proxy measures and the
seen within short time frames, this is         judgement of experienced directors
comparatively easy. NFPs in education          and management. They also noted that            “Our outcomes are very
can measure student numbers and
                                               absence of hard outcome measures can
achievement; arts and sports bodies can                                                         difficult to measure
                                               result in boards focusing too much on the
measure the extent of participation; and
                                               operations or activities (the things that can    and even the idea of
fundraising organisations can measure
                                               be measured); and the difficulty in having       measuring outcomes
the net amount of funds raised.
                                               constructive conversations of alternative
For NFPs in other areas, measuring             strategies when there is little objective        can be contentious.”
their success is much more complex.            evidence to evaluate alternatives.

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                                  The complex problem of measuring             want more non-financial performance
                                  achievement of mission is not fully          measures in general. About 40 per
                                  captured in the results from the survey.     cent specifically want more information
                                  The data does suggest that organisations     about risk, data on the sector and
                                  with income below $1m are twice as           information on achievement of financial
                                  likely as larger organisations to state      benchmarks.
                                  that they were ineffective at measuring
                                                                               In the focus groups, the executive
                                  their mission. It also shows that
                                                                               directors were supportive of providing
                                  directors in the education, international
                                                                               boards with what they need, but
                                  aid, philanthropy and research sectors
                                                                               commented that NEDs are not always
                                  gave their organisations higher
                                                                               aware of the resources required to
                                  ratings for measurement of mission.
                                                                               provide data and that in some cases,
                                                                               the board did not use the results.
                                  Directors want more                          They also gave examples of preparing
                                                                               papers based on past practices and an
                                  non-financial information                    assumption that ‘more information
                                  Approximately 60 per cent of                 is better’ rather than what is most
                                  directors want more measures of              effective and efficient to produce for
                                  achievement of their mission and half        today’s decision-making.

                                  Information the board should have more of
Boards should consider
undertaking an annual audit       n = 1,837
of the information provided
and allocate time in the agenda
to discuss the use of this
information and alternatives.

                                          61%                             59%                             41%
                                       Measures of                Performance measures                Risk reports
                                  achievement of mission              (non-financial)

                                          39%                             39%                             38%
                                          Sector info                Information on              Financial measures and
                                   (e.g. industry reports)          board governance                  benchmarks

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5
Relationships between
boards and CEOs are strong
More than 60 per cent of NEDs report           Overall, the executives in our focus
that the relationship between the boards       groups were very positive about, and        What would you say to
they serve on and CEOs is very good or         grateful for, the role their boards play.
excellent. Only a very small percentage        They were also particularly aware of the    the NEDs on your board?
of both NEDs and executives believed           dedication and the hours contributed by
                                                                                           “Thanks for supporting me,
that relationships between the CEO and         board chairs – in many cases chairs were
the board were poor.                           contributing more than twice as much         for providing a sounding
                                               time as other board members.
                                                                                            board. And, of course, for
                                                                                            the skills and experience
                                                                                            they bring which we can’t
The relationship between the CEO and board                                                  do without.”

                                                                                 38%
                                                       35%
                                                                         34%
                                                               32%

                                      20%
                                              19%

                     9%
  3%                         7%                                                                NEDs   n = 1,968
          4%                                                                                   Executives   n = 280

       Poor               Fair             Good          Very good          Excellent

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                       Role clarity                                      environment of shared responsibility
                                                                         and delegations of authority. They
                       An issue that is often raised in                  gave examples of both chairs and CEOs
                       governance discussions and director               who behaved as if they were running
                       education programs is the need for                their own business, not considering
                       clarity in regard to the role of the board        alternative opinions, withholding
                       and the role of the executive. Although           information and issuing orders. They
                       the majority of directors believed that           also gave examples of the opposite, that
                       role clarity was good to excellent, 19            is, chairs or boards that were passive
                       per cent of NEDs and 20 per cent of               or disengaged, and CEOs unwilling to
                       executives believe that the definition            make operational decisions without
                       of their board and CEO roles is only fair         approval from the board. Finally, there
                       or poor. Lack of role clarity can have a          were stories of directors or CEOs who
                       significant impact on the performance             simply lacked the interpersonal skills
                       of the board and relationships between            and respect for others needed to work in
                       members. For boards that have poor                collaborative environments.
                       or only fair role clarity, discussing and
                                                                         Directors mentioned that the most
                       agreeing the boundaries between board
                                                                         effective solution to this problem is often
                       and CEO duties should be a priority.
                                                                         external whole-of-board evaluation or
                       Directors in our focus groups told ‘war           training but noted it can be difficult to
                       stories’ of situations where conflict was         get a highly autocratic CEO or chair to
                       so severe it resulted in director and             agree to participate. Occasional whole-
                       CEO resignations. In nearly all cases             of-board evaluations can be useful for
                       this conflict was caused by a lack of             all boards as members’ understanding of
                       understanding of how to operate in an             roles can change over time.

                       Clarity of board and CEO roles

                                                                                 33%
                                                                                          31%
                                                                                                              29%
                                                                                                      25%
                                                             23%
                                                                       20%

                                          14% 13%

  NEDs   n = 1,968              7%
                        5%
Executives   n = 280

                            Poor                Fair                Good            Very good            Excellent

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Executives want directors                                      Executives’ concerns in regard to their
                                                                                                            Some boards regularly
                                                               boards’ governance of risk were specific
with better sector                                             to their organisation and its current
                                                                                                            meet in different service
                                                                                                            locations, incorporate tours
knowledge and balanced                                         operating environment. Some felt their       or demonstrations of new
                                                               boards were overly focused on risk and
risk-taking                                                                                                 equipment and bring board
                                                               that strategies were too conservative        members into staff briefings
NEDs and executives responding to the                          and not sufficiently innovative, while       and training. Others have
survey generally agree on the areas of                         others felt that their board had little      separate informal ‘fireside
strength and weakness of their boards.                         understanding of key risks or focused        chats’ outside regular meeting
However, when tested in the focus                                                                           times so concerns, ideas and
                                                               on the wrong risks. It is possible that
groups, executives said they would like                                                                     comments can be shared but
                                                               directors’ level of sector knowledge and
NEDs to invest more in understanding                                                                        not formally recorded.
                                                               risk appetite are related.
the sector of their operations and
approach to risk4. Several executives,                         Both executives and NEDs are
particularly those working in human                            interested in sharing their knowledge
services and education, stated that                            and in having more open and
the commercial experience of their                             challenging conversations to improve
NEDs was invaluable, but would be                              their common understanding of
                                                                                                          Overall performance
better applied if they had a greater                           the organisation and build greater
                                                               consensus about its direction. They        of my board
understanding of how their sector
works. They encouraged NEDs to                                 believe this will improve the quality
                                                                                                          Executives
visit operations, engage with staff                            of strategic planning and particularly
                                                                                                          6.8 out of 10
and see the day-to-day service delivery                        its implementation. This is something
for themselves, and gave examples                              chairs may wish to consider when           Non-executive directors
of directors who had only ever visited                         determining agendas and can be built       7.0 out of 10
the boardroom.                                                 into the board routines.

4
    These differences in views are reflected in the survey data, but are not statistically significant.

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                                6
                                Education —
                                striving to be ‘top of class’
                                Organisations providing education                           dependent on the governance skills of
                                services are the single largest                             local boards. Although independent
                                category of NFPs in terms of income,                        public schools do not have the full range
                                employment and community reach5.                            of responsibilities of their peers in the
                                These organisations include pre-                            private sector, many of the issues they
                                schools, primary and secondary                              face are similar.
                                schools, and tertiary and vocational
                                education providers. It also includes
                                supporting organisations such as school
                                                                                            Independent school
                                associations/entities (e.g. Scouts)                         governance
                                and some health promotion charities.
                                                                                            The structure of school boards varies
                                This year our study focused on the                          considerably. Some are representative
                                unique governance challenges of a                           boards with defined positions for past
                                subset of this group – independent                          students, parents, church leaders and
                                (private) primary and secondary                             appointed directors. Others may have
                                schools and colleges.                                       boards with all external appointees.
                                The issue of school governance is                           The time requirements of a school board
                                increasing in priority in the public                        can be considerable. A quarter of NEDs
                                sector. In the last five years, state                       spend between two and five days per
                                governments, notably Victoria and                           month on their directorship duties and
                                Western Australia have introduced major                     10 per cent report spending more than
                                reforms that enable public (government)                     five days a month. A large majority (76
                                schools to choose to be governed locally                    per cent) are not paid, but 11 stated
                                by their boards and principals rather                       they received directors’ fees. These
                                than an Education Department. This                          ranged from $250 to $55,000, with the
                                is also a major policy direction of the                     average $17,600.
                                Commonwealth government. There are
There are approximately 2,700                                                               Members of our focus groups raised a
                                now hundreds of ‘independent public
independent schools across                                                                  number of unique challenges faced by
                                schools’ in Australia taking decisions
Australia, of which about                                                                   schools and their boards. These were
                                about resource allocation, curriculum
1,000 are affiliated with the                                                               ranked from one to five in terms of their
                                and staffing. This has created huge
                                                                                            importance in the survey.
Catholic Church.                changes in stakeholder relationships.
                                The success of this policy will be highly

                                5
                                    ABS 5256.0 – Australian National Accounts: Non-profit Institutions Satellite Account 2012-13

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Priorities of                                  Funding uncertainty
                                               Changes to the funding of private
school boards
                                               schools has been on and off the
Managing the school’s reputation               Commonwealth government’s agenda
A school’s most important asset is             several times in recent years. School
its reputation, which can take years           infrastructure can take years to
to build, but be lost in a day. A good         plan and fund, and combined with
reputation attracts the best teachers,         changes to curriculum have created
students and community support, as             significant uncertainty and stalled
well as steady donations. Top academic         some investment.
(and sometimes sporting) results
                                               Increasing own source income
have always been important but the
introduction of national testing and           Schools are increasingly seeking major
publication of comparative results online      donations and bequests from past
has made performance increasingly              students and parents of current students
transparent and is putting more pressure       for infrastructure or scholarship funds.
on schools.                                    Schools with male students (either
                                               single sex or co-ed) were reported to
A school’s reputation is also strongly         receive more than double the donations
influenced by the quality of its principal     received by girls’ schools.
who is primarily responsible for building
a culture of high standards and a loyal        Managing parent engagement
and stable workforce. He or she must           School directors noted that the
also be able to create strong and resilient    boundaries between school and home
relationships with students, parents and       have become increasing blurred.
the school’s external stakeholders.            Parents can be exceptionally demanding
Any souring of relationships can have          but valuable stakeholders and some
a swift negative effect on the school.         schools have developed education
Other risks to reputation are related          and engagement programs to make
to the size of the student and staff           it easier for parents to engage in the
populations and the possibility of             school, while providing boundaries for
criminal or corrupt behaviour and              ‘helicopter’ parents. At the same time,
long court processes. These risks              schools are increasingly being asked       “With the number of things
include fraud, drugs, indecent assault,        to deal with complex social, emotional
and sexual abuse. Directors recently           and behavioural problems.                   that can go wrong in a
attending governance forums have been          Executives and NEDs generally agree         school on any single day,
told to plan what they will do when
(not if) their school is involved in a case
                                               on these priorities, but executives have    I often wonder how she (the
                                               greater focus on building enrolments,
of child sexual abuse and how they             performance on academic testing and         Principal) sleeps at night.”
will handle the impact on reputation,          cost management.
whether substantiated or not. The
liability issues for abuse cases can
extend for more than 50 years after
a student has left school.

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                          Five most important challenges for schools in the next three years*
                          n = 128

                           3.9                 3.7
                                                                     3.5                 3.4                         3.3                3.3                   3.2

                           Maintain or build
                             our reputation

                                                 Uncertainty about
                                               government funding

                                                                     Maintain or build
                                                                      our enrolments

                                                                                          Cost management

                                                                                                                     Raise capital to
                                                                                                                  improve or replace
                                                                                                                      infrastructure

                                                                                                                                        Management of risks
                                                                                                                                               to students

                                                                                                                                                                 Maintain or replace
                                                                                                                                                              existing infrastructure
                          *Rating out of five

                          When asked what they want from                                                    curriculum support, infrastructure and
                          governments, the answer from school                                               staffing. A further 10 per cent requested
“Governments should       directors was very clear. Sixty five                                              funding not be reduced or for it to be
 make a commitment to     per cent mentioned clarity of funding                                             applied equitably. The next most common
                          arrangements. Specifically, they wanted                                           request was for clarity and stability
 a funding model beyond   government to make a commitment to                                                around policy in regard to curriculum
 a year.”                 a funding model for at least five years                                           and for consistency across State and
                          so that they could make better decisions                                          Commonwealth government programs.
                          about investment in curriculum and

                                   Two focus groups were held with directors of private schools and 300 NEDs
                                   and 32 executives of NFPs in the primary, secondary, higher and vocational
                                   education sector responded to the survey. Of these, 150 serve on the boards
                                   of independent (private) primary and secondary schools and colleges.

                                   In our sample:
                                 • 8 per cent were directors of schools with income of less than $1m

                                 • 40 per cent were directors of schools with income of over $20m

                                 • 40 per cent were directors working with schools that are registered
                                   charities and 70 per cent were working with schools that are registered as
                                   deductible gift recipients

                                 • 6 per cent of directors were paid

                                   On average, schools received 45 per cent of income from student fees, 26
                                   per cent from the Commonwealth government and 16 per cent from state
                                   governments. Income was also generated through donations, commercial
                                   activities and funds invested.

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7
Aged care responding
to constant change
With our ageing population, the                           most in need or deal with emergencies.
demand for aged care services in                          This is a particular challenge for NFPs     “Strategically it is difficult
Australia is expected to double in                        whose missions are values based.
the next 35 years6. In response, the                                                                   to plan services to meet
                                                          Maintaining financial stability and
Commonwealth government continues
                                                          compliance with government                   community needs when
to implement major reforms to the sector,
including the restructuring of support
                                                          requirements are the highest priorities      the goal posts are
                                                          for providers of aged care services.
packages and funding, the expansion of
                                                          Fundamental changes in the cost of           continually changed with
consumer directed care (CDC), removal
of distinctions between high and low
                                                          service has pushed the minimum viable        changes in legislation,
                                                          size of an independent residential
care residential services, and revisions
                                                          aged care facility to more than 100          government whims, and
to aged care bond arrangements.
                                                          beds; others suggested it is higher.         not enough money in
Directors in aged care commented most                     Directors spoke of the need for aged care
about the complexity of the system for                    providers to grow and 40 per cent stated     the system available into
all stakeholders, but particularly for                    that their board had discussed a merger      the future.”
service users, their families and service                 in the last 12 months and half expect it
providers. CDC and individualised                         to happen. The main reason for merger
funding is seen as a positive policy                      was to ensure their own organisation’s
direction and supported, but there are                    financially sustainability (52 per cent)
concerns about how this will impact                       or because they had been approached
providers’ capacity to ‘bend’ service                     by smaller providers.
allocation at the front line to serve those

6
    Centre of Excellence of Population Ageing Research 2014/01

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                                   Two focus groups were held with directors of NFPs operating in the aged
                                   care sector and 135 NEDs and nine executives answered specific survey
                                   questions related to aged care governance in the survey. Aged care
                                   organisations are typically large. In our sample:

                                  • Nearly a quarter of NEDs work                                                            • Over 70 per cent of these
                                    with aged care organisations                                                               organisations are charities
                                    with income of $10m to $50m                                                              • 15 per cent of NEDs are paid. The
                                    and a third served organisations                                                           highest reported directors fee was
                                    with income over $50m                                                                      $88,000 and the average $33,000

                            One of the major cost drivers for those                                                           the freehold to the land, reducing their
“The government needs       who provide residential aged care is                                                              ability to finance capital investment.
 to look long, long, long   the cost of building or refurbishing                                                              Despite this, many providers were in
                            existing facilities to meet current service                                                       the process of finalising planning for or
 term to work out what      expectations. Modern residential aged                                                             building of new aged care facilities.
 is needed.”                care facilities are expensive to build and
                            maintain and providers may not own

                            Five most important challenges for aged care organisations
                            in the next three years*
                            n = 110

                             4.1              3.9
                                                                        3.6                    3.6                  3.5               3.5                        3.4                   3.3             3.2
                                 Financial
                             sustainability

                                                     Compliance with
                                              government requirements

                                                                        Changes to Consumer
                                                                               Directed Care

                                                                                               Changes to bond
                                                                                                 arrangements

                                                                                                                    Maintaining or
                                                                                                                 replacing existing
                                                                                                                     infrastructure

                                                                                                                                      Maintaining/improving
                                                                                                                                                 staff quality

                                                                                                                                                                 Risk management

                                                                                                                                                                                       Shift towards
                                                                                                                                                                                       in-home care

                                                                                                                                                                                                       Raising capital to build
                                                                                                                                                                                                            new infrastructure

                            *Rating out of five

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Similar to others, aged care directors         Directors also spoke of a desire for
want the government to create                  the Commonwealth government to               “We are moving towards
stability in the policy and funding            change its attitude to the sector and
environment to enable providers to             to stop treating it as a problem that         more user pays and
catch-up with current change and               needs to be solved. Instead they want         while this presents
allow them to develop strategies. But          recognition that, for the most part,
they also want simplification in the           Australia has world class aged care           opportunities for provider,
policy environment, a reduction in             services, most of which are provided          it also presents serious
reporting burden and streamlined               by NFPs with significant experience
accreditation standards. In particular,        and the capacity to offer more with the       challenges for the care of
they want standards that reflect the           right support. They believe the future        those without significant
quality of life of aged people, not “44        of aged care services will be driven
measures that don’t mean anything              by the effectiveness of government            means. In moral terms,
at all.” They also believe that the            policy in regard to setting more realistic    to what extent can
government should be supporting the            expectations about entitlements,
provision of low cost finance to enable        superannuation policies that result in        government expect aged
further investment in infrastructure to        a higher proportion of people having          care providers to ‘balance
meet growing demand.                           sufficient resources from retirement to
                                               death, and investment in an ‘ageing well’     the social ledger’?”
                                               program and preventative health.

     The Commonwealth government regulates and provides most of the
     funding for aged care services in Australia. In 2012-13, the Commonwealth
     spent a total of $13.6bn on aged care including $9.4bn on residential
     services and $3.3bn on community care.

     NFPs provide 58 per cent of residential aged care places and for-profit
     organisations 36 per cent. Governments provide the remainder. Community
     care services are also provided by a mix of NFP and for-profit providers.

     Aged care services include low and high care residential places, and
     community care services such as home nursing, meals, help with personal
     care, and help with household maintenance.

     Reform of aged care has been progressively introduced over the last two
     years and will continue to be rolled out until 2016.

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                                                           8
                                                           Directors’ contribution
                                                           is significant
                                                           The average amount of time NFP                                                                        philanthropy and volunteering spent
“No, I don’t claim expenses                                directors spend working for a single                                                                  the most time on their directorship
                                                           NFP organisation increased from 16                                                                    duties, averaging 23.6 hours a month
 and this year I have spent                                hours per month in 2012 to 20 hours                                                                   on a single NFP. The least amount of
 a lot of time traveling                                   in 2013. This year, the average was                                                                   time was spent by directors working in
                                                           again 20 hours per month. This equates                                                                economic development and housing,
 (interstate) to recruit a new                                                                                                                                   who averaged 17.9 hours per month.
                                                           to over six working weeks per year or
 principal. The expenses                                   about two and a half full working days.                                                               Nearly half of NEDs included in this
 are in the thousands but                                  Directors’ time contributions vary by                                                                 study work for more than one NFP
                                                           size and sector. A quarter of all directors                                                           organisation and, on average, they have
 I make a donation to the                                                                                                                                        1.6 directorships, which is similar to
                                                           of very large NFPs spend more than
 school every year – which                                 five days a month on their directorship                                                               previous years. Despite no change in the
                                                                                                                                                                 number of directorships they hold, there
 is expected – so it doesn’t                               duties for a single organisation,
                                                                                                                                                                 has again been an increase in the amount
                                                           compared with only 10 per cent of
 make sense to then claim                                  directors of small NFPs.
                                                                                                                                                                 of time directors’ report spending on
                                                                                                                                                                 all their NFP directorships. In 2012, the
 expenses.”                                                In regard to the sector, directors                                                                    average was 23 hours per month; this year
                                                           working for NFPs operating in                                                                         it is 32 hours or four days per month7.

                                                           Average hours NEDs spent by sector
                                                           n = 2,237

                                                           23.6
                                                                              22.3 21.9
                                                                                        21.6 21.1
                                                                                                                                           20.0 19.5
                                                                                                                                                     19.0 18.9 18.8 18.6
                                                                                                                                                                         18.2 17.9
                                                               Philanthropy
                                                           and volunteering

                                                                               International

                                                                                               Religion

                                                                                                          Business/professional
                                                                                                                   associations

                                                                                                                                  Health

                                                                                                                                            Aged care

                                                                                                                                                        Culture and
                                                                                                                                                         recreation

                                                                                                                                                                      Research

                                                                                                                                                                                 Education

                                                                                                                                                                                             Social services

                                                                                                                                                                                                                Law, advocacy
                                                                                                                                                                                                                  and politics

                                                                                                                                                                                                                                 Environment

                                                                                                                                                                                                                                               Development
                                                                                                                                                                                                                                                and housing

7
    This information is based on reported not recorded hours, and it is possible that the increase partly reflects an increase in awareness of the hours spent.

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Payment of directors’ fees                                    per cent of directors of NFPs with income
                                                              over $20m per annum are paid, compared         “Payment of directors is
The majority of NEDs of NFPs provide                          with 12 per cent of directors of NFPs with
their time and expertise for free. This                       income less than $10m.                          only going to happen if
is true even for those who work for
                                                              Perhaps less expected is the extent to          we have a major change,
our largest NFPs. More than half of
our respondents (51 per cent) do not                          which the payment of directors’ fees            like taking over another
receive fees and pay any expenses they                        varies across sectors. This difference is
                                                              likely to be partly related to the variation    operation (merging)”
incur as a result of their directorship
role. Approximately a quarter have their                      in the average income of NFPs operating
expenses paid and three per cent receive                      in different sectors. Nevertheless, it is
an honorarium.                                                interesting that 31 per cent of this year’s
                                                              directors working for NFPs in the health
This year, 16 per cent of directors                           sector are paid, as were 28 per cent
reported being paid. Although this                            working in economic development and
appears lower than the 19 per cent in                         housing. In contrast, only 12 (four per
our 2013 study, the result is within                          cent) of the 307 directors working for
error levels and therefore reflects                           NFPs in the social services sector received
approximately the same ratio.8                                directors’ fees, and none of the directors
As reported in 2013, payment of directors                     of religious NFPs received payment.
is correlated with NFP income. Nearly 30

Per cent of directors paid by sector
n = 2,239

                                                  31%                                                 6%
Health                                                        Business/professional associations

                                                  28%                                                 5%
Development and housing                                       Law, advocacy and politics

                                                  20%                                                 4%
Environment                                                   Social services

                                                  20%                                                 3%
Research                                                      Culture and recreation

                                                  15%                                                 2%
Aged care                                                     International

                                                  14%                                                 0%
Education                                                     Religion

                                                   8%
Philanthropy and volunteering

8
    This could be the result of sampling not a decline in the percentage of paid directors

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                                 How much are NFP                                 separated from the question of how
“On one hand, directors          directors paid?
                                                                                  much. Several remarked that there
                                                                                  was no evidence that NFP director
 contributions are significant   For the first time, the 2014 study               performance is correlated with quantum
 and they should not be          asked how much directors were paid               of pay, and therefore the decision on
                                 in the last financial year and 321               the amount of pay is highly subjective.
 expected to do it for free.     directors provided this information.             They also noted that constitutions of
 But on the other, how much      The amounts received ranged from                 NFPs, and the difficulty of changing
                                 $1,200 to $185,000.                              these, are significant barriers to change.
 to pay is just fraught with                                                      Further, that once done, it was not
                                 When ranked in order of amount
 so many problems; it’s just     received, the lowest ten per cent
                                                                                  likely to be reversed, opening the
                                                                                  door to possible exploitation or, at
 easier not to go there.”        of paid directors received less than
                                                                                  least, for on-going disputes between
                                 $6,800 and the highest ten per cent
                                                                                  stakeholders. Directors of organisations
                                 more than $60,000. The median
                                                                                  in competition for government funding,
                                 payment for 2013-14 was $20,000.
                                                                                  or reliant on donations, believed that
                                 Although payment of director fees                payment of directors fees would have
  Directors’ fees
                                 appears dependent on both income and             a direct and significant negative impact
  Highest: $185,000              sector, the history and culture of the           on future income.
                                 organisation are also key determinants.
  Median: $20,000                                                                 We aim to explore these issues in more
                                 It is clear that there is no rulebook            detail in future studies, with a particular
  Highest paid 10 per cent                                                        focus on identifying the characteristics
                                 on this issue and the decision to pay
  receive more than $60,000      directors is unique to each organisation.        of organisations that pay director fees;
  Lowest paid 10 per cent        In our discussion groups, directors’             if they shifted from non-payment and
                                 opinions remain strongly divided and             how; and if they noticed an increase in
  receive less than $6,800
                                 they commented that the question of              the quality of governance or ability to
                                 whether to pay directors cannot be               attract directors.

                                                                             NFP Governance and Performance Study 2014   | 31
companydirectors.com.au

9
Certainty in government
policy is needed
Responding to change                           our survey receive an average of 30

and uncertainty in
                                               per cent of their income from the           "Decision-making is frozen.
                                               Commonwealth and 23 per cent from
government policy is                           the state governments, and both tiers        We have no choice but
a top priority
                                               have announced significant reductions in     to wait – but there's no
                                               government spending.
Maintaining or building income,
                                                                                            certainty that when they
                                               Many NFPs are struggling to determine
diversifying income sources and                the impact of these changes and in           change something it will
clarifying strategy are still key priorities
for the next year but many boards now
                                               several areas policies and legislation       stay changed."
                                               are either still being determined or
have to meet these challenges in an            have not been passed by government.
environment of widespread change               This has a significant impact on NFPs’
in government policy.                          ability to plan for the future, to secure
The election of the Coalition Federal          appropriate resources and to maintain
Government in 2013 brought with                the required number and composition
it major reforms to education, aged            of staff. They are caught between
care, disability services, health care         needing to respond quickly and
and social services, many of which             effectively to new policy and trading       “We can cope. We just
                                               conditions or waiting until changes
will have a major impact on how                                                             need to know what we
                                               have been finalised.
NFPs operate, even requiring some
to completely redesign their business          This was a strong theme throughout           are coping with.”
models. In addition, the NFPs in               this year’s study.

32   | NFP Governance and Performance Study 2014
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