Article:

Making A Difference, Leadership & Governance in Not-For-Profits

01 March 2015

The Not for Profit (NFP) sector has always played a significant role in New Zealand. From charities, clubs, unions, trade associations, sports organisations and political organisations to arts, education and social services, NFP organisations touch our lives in many fundamental and important ways.

The most recent data shows that in 2004 there were approximately 97,000 NFP organisations, contributing nearly 5% of GDP and employing nearly 10% of the economically active population. And with the trend towards contracting out direct social service provisions to NFP organisations, the role of the sector is likely to become even more critical.

In any organisation, both ‘For Profit’ and ‘Not for Profit’, effective leadership and governance is an essential prerequisite for success. Unlike ‘For Profit’ organisations, however, Boards in the NFP sector are usually not paid and work in a voluntary capacity. This requires true motivation, especially when the going gets tough.

But while leadership in an NFP may not come with monetary rewards, it can be incredibly rewarding and satisfying in many other ways. Great leaders can not only enrich the lives of others, but also enrich their own lives in the process.

Great leaders, however, are hard to find and hard to develop. The challenge for the sector going forward will be to identify those leaders and people that have the time, skills, and motivation to commit to the organisation. Current leaders also have a responsibility to help and nurture future leaders.

Both organisations and leaders need to think carefully about selecting and taking on leadership roles. To help, this article looks at the role of leaders in NFP organisations, the skills required for effective governance, and considerations for prospective leaders.

The role of leaders and Boards

Ultimately, the leader’s role is to:

▶ Having a deep understanding of the organisation’s purpose;

▶ Having a clear vision for the future of the organisation, and then;

▶ Delivering the full potential of that organisation to its stakeholders and beneficiaries.

In other words, to transform purpose into a vibrant organisation. The Board members must work as a team (along with the CEO) to achieve that goal. The Board should have three main areas of focus:

  1. Forming the vision of the organisation
  2. Election of the CEO
  3. Monitoring the organisation.

Vision:

The Board’s main purpose is to set and communicate the vision of the organisation – what it is for and what it wants to achieve. Organisations should have a complete review, at least every three years, of their strategic plan and vision (preferably lead by an external facilitator). This gives the CEO the clarity they need to follow through on the vision.

In setting the vision, the Board should always be guided by the founding document for the organisation. The founding document may be the Rules and Constitution (for incorporated societies), the Trust Deed (for charitable trusts), the Constitution (for charitable companies), the Partnership Deed and rules (for Partnership structures), or something else. Whatever form it takes, leaders need an in-depth understanding of the founding document, as it will become the cornerstone of their actions.

Electing the CEO:

This is a crucial aspect of the Board’s role. The ability and competence of the CEO is one of the key ‘make or break’ points in the organisation. A weak CEO has the ability to bring down the entire organisation; a strong CEO who understands and is committed to the Board vision can take the organisation to new heights. It is critical to take the time needed to find the right CEO and if a good candidate is not available, the process should be started again.

Once selected, the CEO must have a very good working relationship with the Board, particularly through the chairperson. In the worst case, we have seen an organisation wound up as a result of issues between the CEO and Board.

Monitoring:

Having set the vision and strategic plan, the Board’s role is to monitor and ensure that the vision is carried out. This includes not only financial monitoring, but also ensuring that all the outcomes that are set out in the strategic plan are achieved. That’s why any Board needs a mix of skills and experience.

Policy setting

As part of its governance role, Boards should develop policies and procedures to guide the organisation. These should cover all major aspects of the organisation, including financial – a critical area yet often lacking in NFP policy. While in practice this is often left to the CEO, it should be a collaborative process between CEOs and the Board.

The Board also has a key role in monitoring the organisation’s policies and ensuring they are communicated, understood and followed. As part of this, they should ensure policies are reviewed regularly - rather than left to gather dust in a filing cabinet.

Skills and attributes of leaders

The best leaders share a number of personal traits. They are leaders in the best sense of the term – they are big thinkers with ability to rise above the day-to-day operations and communicate their vision for the organisation they lead. Authentic leaders have empathy and an ability to build trust and take people along with them, and energise their team to achieve their potential. They also have an ability to delegate, and surround themselves with people who will carry out the day-to-day running of the organisation in line with their vision.

Other aspects you would expect to see in a community leader include:

  • Well-connected – being well known in their community with the ability to draw on other people’s skill sets and provide the organisation with access to the best possible skills.
  • Commitment to the organisation and its goals – including having the time to represent it properly. Before joining a Board, a person should be very clear that they are able to not only attend Board meetings but also commit to doing work outside of Board time when needed. Those who don’t can still contribute, but are best utilised in specific operational areas such as fundraising and/or administration rather than leadership positions.

Of course, finding people who possess these characteristics is not easy.

It’s interesting to note that the busier and more successful a person is, the more time they seem to have to commit to organisations that they believe in.

Getting the right mix

Ideally, on every Board there should be a person that covers a specific skill set – for example a lawyer, an accountant, a ‘business person’, and people with expertise in specific issues – for example if the organisation serves a health purpose there should be a health specialist on the Board. The specific skills should also include an understanding of Treaty of Waitangi issues and the specific place that Maori occupy in NFPs in New Zealand.

One of the key documents every Board should have is a skill set matrix outlining the essential skills needed on the Board (a copy of BDO’s NFP Skills Matrix is available on request). Every Board member should be able to fill one position, and have a good working knowledge of at least one other.

However, every Board also needs to recognise that they will not fill every gap in the governance of the organisation. In some areas they may need to call on specialist skills for a temporary period. Typically this can be done through creating a subcommittee and inviting participants with specific skills to join it, or by contracting out such skills.

Look before you leap

As we’ve seen, governance is hugely important to the success or otherwise of NFP organisations (as it is for ‘For Profit’ organisations also). That’s why a Board role should not be undertaken lightly.

Having the time to properly commit to the role is one key criteria. But anyone considering joining a Board should also undertake thorough due diligence – both of the organisation and of the existing Board.

Key areas for due diligence include:

  • The constitution and strategic plan of the organisation
  • The minutes of the past year’s meetings
  • The published financial statements
  • A review of current Board members and their areas of expertise

Prospective Board members should also attend at least one or two Board meetings to see how they operate, and to ensure they are comfortable that they can work effectively with Board members and within the Board environment.

(A copy of BDO’s checklist for due diligence prior to joining a board is also available on request).

Challenges…

Leaders in the NFP sector face a number of challenges in the coming years. Chief among these are the challenge of finding alternative sources of funding to replace diminishing revenue streams from current avenues, changes in legislation (including major new health and safety regulations which impose a personal duty of due diligence on directors and stiff penalties for failing to carry out that duty), changes to accounting regulations, in particular the way Financial Statements are prepared for public filing, and the dilution of democracy and accountability that has crept into the sector over recent times.

These challenges mean life in the NFP sector is unlikely to become easier

– but they also make the need to find, develop and nurture outstanding leaders even more critical.

…and opportunities

Great leaders are attracted by great challenges – and great opportunities. For those looking to make a difference, the opportunities in New Zealand’s NFP sector are as great today – and perhaps greater - than they have ever been. The challenge for NFPs is to continue to find and attract leaders who can help them transform their purpose into tangible outcomes for their communities.

BDO has considerable experience in working with Not for Profit organisations and their leaders achieve their goals. To find out more, contact contact Henry McClintock via email at henry.mcclintock@bdo.co.nz