On the 28 June 2011, Hayes Knight invited Kevin McCaffrey, Director of Effective Governance New Zealand, to address the Governance issues crippling New Zealand’s Not-for-Profits. A mixture of board members, managers, and CEOs from close to 90 Not-for-Profit organisations attended. This is the presentation from the event.

1. The Governance Challenges
of Running a Not-for-Profit
Guest Presenter: Kevin McCaffrey, Effective Governance
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2. Hayes Knight
Governance Challenges for NFP’s
June 2011
Kevin McCaffrey
Partner
kevin@effectivegovernance.co.nz

3. Contents
1. Governance Overview
2. Got a Map ? How’s your WoF?
3. The Individual Board Member’s Role
4. The Board’s Role
5. What's the plan?
6. Managing Risk
7. Noses in and Fingers Out
8. Key Points

4. The Type of Organisation Determines Governance
Requirements
Commercial
Listed Company
Start-up Mature
Regulatory
Public Good

5. Organisation Life Cycle influences Governance
Transform

6. Governance is influenced by Current Events &
Future Demands
Degree of Change
high
Appetite low
For high Time
low 1 2 3 4 5 (yrs)
Risk
Start-up
Mature high
Level of Board Engagement

7. There are 4 Models of Governance
1. Agency Model – There is absolute separation of powers, the
Board scrutinises Management on behalf of the shareholder, e.g.
Listed companies
2. Stewardship Model – The Board works with Management to
guide the organisation and is actively engaged in strategy and
advising the management.
3. Resource Model – The Board is considered and acts as a
resource for the organisation, networks, representation, skills etc,
common in start-ups and Community and Social Organisations –
NFP’s
4. Stakeholder Model – An emerging model where the Board
represents a range of Stakeholders interests and guides the
management in balancing their interests, common in Social –
Political influencing organisations.

8. The Legal Framework
Incorporated Societies
Have at least 15 members and are registered under the Incorporated
Societies Act 1908. Members associate together for a mutual interest
other than the pursuit of profit
Charitable Trusts (Charities Act 2005) comprise either
1. A Trust where property is legally owned by a group of people
(trustees) managed for the beneficiaries of the Trust. The Trust
does not have a legal identity
2. A Charitable Trust Board is a group of people that holds assets or
conducts activities for charitable purposes. The organisation
acquires a separate legal identity that is independent of trustees or
members
Are you a Trust or Trust Board??
Do Check !!

9. What is your Governance Map?
Members Electoral
Colleges
Committees
Council Regions
Influence Branches
Over
Board
JV
Volunteers
What is the Source of Authority ?

10. Governance Map – XYZ Trust Inc
XYZ Trust Incorporated
(26th August 1969)
JV
Trust Board Incorporated Elected from society members at
(25th May 1967) each AGM
Standing Committees Adhoc Sub-Committees
•Women’s committee (Board sub- •Executive remuneration &
committee) Elected by Board disciplinary
•Finance & Audit •Property
•Quality & Risk •Private Service Funding
•Positioning / Events
ABC Endowment Fund CEO
Identify your Source of Authority

11. Governance Structure – who was really in charge?
Source of Authority
??
Board of Trustees
President
Finance Subcommittee Senior Executive
Funding Subcommittee Fundraiser
Staff
Marketing Subcommittee
Governance Ad Hoc
Subcommittee
Volunteers
CEO Ad Hoc
Subcommittee
Planning Ad Hoc
Subcommittee
Founders Syndrome ?????

12. WoF Check
 Is your Constitution, Trust Deed up to date?
Show it to me !!!
 Does it meet your current and future needs?
 Do you know the Source of Authority and the related
Authorities (not just delegated authorities)
 Does everyone know the hierarchy ( parent and child)?
 Do they follow it?
 Can you draw it for me?

13. Effective Governance Model
ORGANISATIONAL ENVIRONMENT
Organisation Legal
Constitution Strategy History
Type Framework
THE BOARD ENVIRONMENT
BOARD CAPITAL BOARD ROLES
Board Board Strategy
Competencies Behaviours
CEO Selection, Monitoring and
 Knowledge  Personality Evaluation
 Skills  Values
 Abilities  Norms
 Board- Monitoring
 Contacts management
Board relations Risk Management
Dynamics
Compliance
Policy Framework
Board Networking
Structures
Stakeholder Communication
 Policies
 Processes Decision Making
 Procedures
 Committees Effective Governance
WORK WITH AND THROUGH THE CEO AND STAFF
ORGANISATIONAL PERFORMANCE

14. For Whom Must I Act ?
1. Members ?
2. Clients ?
3. Entity ?
4. All ?

15. Basic Duties of a Board Member
First duty:
To act in good faith and in what the director believes to be
the best interests of the Company, Society or Trust.
 To exercise powers for ‘proper purpose’
 Not to allow ‘reckless trading’
 To exercise reasonable ‘care, diligence and skill’
 May rely on Information from management or
professional advisers subject to proper inquiry.

16. Individual's Responsibilities
 The Fiduciary Principle
“One who having been entrusted with powers for another's benefit is under a
general equitable obligation when dealing with those powers to act honestly in
what they consider to be in the other’s interests
 “Fides” – trust, faith, belief, truth confidence
 Independence, probity, honesty, diligence
 Duty and Responsibility
– The Duty of Good Faith
– The Duty of Care
– The Duty of Skill
– The Duty of Diligence
 In doing so, they must continually ask themselves the 8 questions;

17. Question One
Is there any conflict?
 Duty of good faith

18. Question Two
Do I have all the facts to enable me to make a decision?
 Duty of care
 Duty of skill
 Duty of diligence

19. Question Three
Is this a rational business decision based on all the facts?
 Duty of care
 Duty of skill
 Duty of diligence

20. Question Four
 Is the decision in the best interests of the company?
 Duty of good faith
 Duty of care
 Duty of skill

21. Question Five
 Is the communication to stakeholders transparent?
 Duty of good faith
 Duty of care
 Duty of skill
Sunlight is the best disinfectant
Artificial illumination is the best policeman

22. Question Six
Is the company acting in a socially responsible manner?
 Duty of care
 Duty of skill
 Duty of diligence

23. Question Seven
Am I acting as a good steward of the company’s assets?
 Duty of care
 Duty of skill
 Duty of diligence

24. Question Eight
Would the board be embarrassed if its decision and the
process employed in arriving at the decision appeared
on the front page of the national newspaper? (The
Sunday morning paper test)
 Duty of care.

25. Board Member Responsibilities- Cont’d
1. Is there a conflict? good faith
2. Do I have all the facts to make a decision
care skill diligence
3. Is this a rational business decision based on all the facts?
care skill diligence
4. Is the decision in the best interests of the Organisation?
good faith care skill
5. Is the communication to stakeholders transparent?
good faith care skill
6. Is the Organisation acting in a socially responsible manner?
care skill diligence
7. Am I acting as a good steward of the Organisation’s assets?
care skill diligence
8. The Sunday morning paper test
care

26. The Board’s Core Accountabilities
1. Setting the Governance Framework
2. Strategic Planning
3. Risk Management and Compliance
4. Monitoring and Fiscal Control
5. Policy & Authorisations
6. Shareholder & Stakeholder Management, and
“Hire the CEO – Accept Their Plan – Fire the CEO”

27. Principles for Corporate Governance
( Securities Commission Guidelines)
Governance Principles
1. Directors should observe and foster high ethical standards
2. There should be a balance of independence, skills, knowledge, experience and
perspectives among directors so that the board works effectively.
3. The board should use committees where this would enhance its effectiveness in key
areas while retaining board responsibility.
4. The board should demand integrity both in financial reporting and in the timeliness and
balance of disclosures on entity affairs.
5. The remuneration of directors should be transparent, fair and reasonable.
6. The board should regularly verify that the entity has appropriate processes that identify
and manage potential and relevant risks.
7. The board should ensure the quality and independence of the external audit process.
8. The board should foster constructive relationships with shareholders that encourage
them to engage with the entity.
9. The board should respect the interests of shareholders (and stakeholders) within the
context of the entity’s ownership type and its fundamental purpose.

28. Principles & Rules Governance Framework
Governance
Principles
Charter
XYZ Trust •_____ Regulations
Constitution •_____ & Rules
•_____
Operating
Policies

29. Effective Governance Model- Strategy Development
ORGANISATIONAL ENVIRONMENT
Organisation Legal
Constitution Strategy History
Type Framework
THE BOARD ENVIRONMENT
BOARD CAPITAL BOARD ROLES
Board Board Strategy
Competencies Behaviours
CEO Selection, Monitoring and
 Knowledge  Personality Evaluation
 Skills  Values
 Abilities  Norms
 Board- Monitoring
 Contacts management
Board relations Risk Management
Dynamics
Compliance
Policy Framework
Board Networking
Structures
Stakeholder Communication
 Policies
 Processes Decision Making
 Procedures
 Committees Effective Governance
WORK WITH AND THROUGH THE CEO AND SMT
ORGANISATIONAL PERFORMANCE

30. So what is strategy? - Really
“ A Commonly held view”
“ Its written down”
“ Its never complete”
“ It needs to guide decision making”
“ It’s the stories you hear in the organisation”
“Its our Values”
Copyright -Effective governance 2010

31. What is your Ambition?
Transform
You are here

32. Set Goals to describe the Ambition
Vision: Trajectory
V
Mission Mission: W+W+H
Strategy
Business Plans
Goals &
Time Horizons
Forecasting Sectors
Clients
Performance Reporting Size
Turnover
People
OUR VALUES etc

33. Strategy – The guts of it = WWH
 WHAT will we DO? -------------------------- NOT DO
– What Services & Offerings will we do
– What will we NOT DO
Strategy is about saying NO
 WHO FOR? ---------------------------- NOT FOR
– Clients, Funders, Demographics,
– Members, Staff, Suppliers
– Volunteers, Stakeholders.
 HOW will we do this?
– The Operating Model
– Tangible/ Physical Resources – Facilities, technology, products
– Intangible resources - people, brands, IP, volunteers
This is the core purpose of the organisation

34. Strategy Drives Priorities and Resourcing
Research Values Vision Mission
Council Ideas 3 Year Rolling Business Plan
Strategic Goals 2011 2012 2013 2014
Members
Board Plans 5 Year Plan
Strategic Goals Clients
Plan 2014 + Services
Management Ideas
Delivery Model
Members Our People
Branch Ideas
Joint Session of Our Clients Fiscal Goals
•Council Stakeholders
Stakeholders •Board Our Services
•Management Priorities
Our Delivery Model
Competition To set priorities
Our People Annual Plan
People Strategic Goals Budget Actual
Fiscal Goals
Members
Environment Risk Appetite Clients
Services
Regulation Stakeholder Interests
Delivery Model
Our People
Fiscal Goals
Stakeholders

35. Effective Governance - Risk & Compliance
ORGANISATIONAL ENVIRONMENT
Organisation Legal
Constitution Strategy History
Type Framework
THE BOARD ENVIRONMENT
BOARD CAPITAL BOARD ROLES
Board Board Strategy
Competencies Behaviours
CEO Selection, Monitoring and
 Knowledge  Personality Evaluation
 Skills  Values
 Abilities  Norms
 Board- Monitoring
 Contacts management
Board relations Risk Management
Dynamics
Compliance
Policy Framework
Board Networking
Structures
Stakeholder Communication
 Policies
 Processes Decision Making
 Procedures
 Committees Effective Governance
WORK WITH AND THROUGH THE CEO AND SMT
ORGANISATIONAL PERFORMANCE

36. What’s this all About?
 What do we mean by Risk
 How to Identify and Manage Risk
 The Role of the Board
Source J Bendall

37. Survive & Prosper !
Source J Bendall

38. Firstly a common language is needed ….
 Risk - the chance of something that will have an impact on objectives. It is
measured in terms of consequence and likelihood.
 Risk Management - the culture, processes and structures that are directed
towards the effective management of potential opportunities and adverse
effects.
 Risk Appetite – the amount of risk the entity is prepared to take in pursuit
of it’s objectives .
 Risk Tolerance – the amount of loss the entity is will to bear should a risk
materialise.
Source J Bendall

39. Services Poorly Reputation / Brand Poor Morale
Defined and Motivation
Service Standards Loss of Key Staff
Slip
Possible Risks Competencies
Negative Public not Defined
Disclosure
Inadequate
Business Plans / Budgets Training and Support
Not
agreed/finalised Fraud and theft
- Cash - Information
Legal non-compliance
- Time - Property
Source J Bendall

40. Risk profiling and Reporting helps focus efforts
# Tier 1 Risks
Catastrophic 3
7
Impact / Consequence
20 7
16 14 3
Major 18 14
3
16
4
Moderate
18
Minor 20
6
Insignificant
7
Remote Unlikely Moderate Likely Almost 8
certain
Likelihood of
Occurrence

41. What can you do about it?
High
Short Term Action Critical
•Reduce •Terminate
•Transfer
Likelihood
Low Priority Strategies
•Transfer
•Accept /monitor •Reduce
Low
High
Impact

42. Responsibility for risk management
Stakeholders
 Risk management
- Policy
- Philosophy  Assurance to
- Appetite Board stakeholders
 Risk profile
 Risk management  Emerging Issues
system Management  Early warnings
 Ensure accountability
 Risk aware culture
 Current risk profile
Employees  Action plan status
Source J Bendall

43. The Board’s role
 Set the “tone at the top”
 Determine the organisation’s risk appetite/tolerance
 Approve the risk management policy
 Approve risk management framework for the organisation
 Risk and compliance monitoring
 Survive and Prosper!
Source J Bendall

44. Effective Governance Model- So who is in Charge?
ORGANISATIONAL ENVIRONMENT
Organisation Legal
Constitution Strategy History
Type Framework
THE BOARD ENVIRONMENT
BOARD CAPITAL BOARD ROLES
Board Board Strategy
Competencies Behaviours
CEO Selection, Monitoring and
 Knowledge  Personality Evaluation
 Skills  Values
 Abilities  Norms
 Board- Monitoring
 Contacts management
Board relations Risk Management
Dynamics
Compliance
Policy Framework
Board Networking
Structures
Stakeholder Communication
 Policies
 Processes Decision Making
 Procedures
 Committees Effective Governance
WORK WITH AND THROUGH THE CEO AND SMT
ORGANISATIONAL PERFORMANCE

45. The Board’s Core Accountabilities
1. Setting the Governance Framework
2. Strategic Planning
3. Risk Management and Compliance
4. Monitoring and Fiscal Control
5. Policy & Authorisations
6. Shareholder & Stakeholder Management, and
“Hire the CEO – Accept Their Plan – Fire the CEO”

46. Its about having Noses in & Fingers Out !!!!!!
Degree of Change
high
Appetite low
For high Time
low 1 2 3 4 5 (yrs)
Risk
Start-up
Mature high
Level of Board Engagement ?????

47. Identify Board & Management Accountabilities
Depth of Governance Range of Governance
Core Governance Strategic Governance
Strategy Industry Knowledge
Policy
Audit Channels
Risk Markets
Design Compliance Acquisitions
Fiscal Alliances
Approval Reporting Funding
Remuneration Turn Around
Governance Change Management
Implementation Strategy
Stakeholder Mngt
Monitor
Review

48. Assign Accountability for Audit
Ensure Financial Audit is conducted in accordance with
Regulations
BOARD CHAIR FINANCE CEO CFO External
COMMITTEE
POLICY A a
DESIGN A a a a
auditor
APPROVAL A a
IMPLEMENT A a a a
MONITOR A
REVIEW A a a a a
A = Accountable Organisation Wide
a = Accountable for a Function/Area only

49. Develop and manage an effective Fund Raising Plan
BOARD CHAIR CEO Funding Branch External
Manager Fund
Raiser
POLICY A a
DESIGN a A a a
APPROVAL A
IMPLEMENT a a A a A* a
MONITOR A? A
REVIEW A a a a
* Who keeps the money? Branch or Centre
A = Accountable Organisation Wide
a = Accountable for a Function/Area only

50. Governance Accountability Map
Bd Reporting
Performance
Staff Appnts
Governance
Stakeholder
Fiscal Mngt
CEO Appnt
Compliance
Operations
Risk Mngt
Volunteer
Mktg &
Business
Funding
Manage
Promo
Audit
Plan
Mgt
Bd
Policy
Design
Approve
Implement
Control
Review
Board Finance Committee Governance Committee CEO Committee means Facilitation of process
Planning Committee Funding Committee Marketing Committee Senior Executive recommendation to Board

51. Governance Accountability Structure & Map
Source of Authority
Board of Trustees
President
Finance Subcommittee Senior Executive
Funding Subcommittee Fundraiser
Staff
Marketing Subcommittee
Governance Ad Hoc
Subcommittee
Volunteers
CEO Ad Hoc
Subcommittee
Planning Ad Hoc
Subcommittee
The Founding President Resigned

52. Conclusion
1. Check your WoF
2. Discharge your four fundamental duties; Good Faith, Care,
Skill & Diligence.
3. Ask the 8 questions
4. A commonly held view = WWH
5. Prioritise how to get there – 3 year rolling plan
6. Identify and mitigate risk
7. Agree Noses in and Fingers out