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Perpetual Foundation Report Finds Bad NFP Governance and Accountability

3 December 2007 at 12:35 pm
Staff Reporter
A new report claims that the Australian Not for Profit sector has wasted resources, underdeveloped accountability and poor governance - the most serious criticism leveled at NFP Boards.

Staff Reporter | 3 December 2007 at 12:35 pm


Perpetual Foundation Report Finds Bad NFP Governance and Accountability
3 December 2007 at 12:35 pm

A new report claims that the Australian Not for Profit sector has wasted resources, underdeveloped accountability and poor governance – the most serious criticism leveled at NFP Boards.
The report was commissioned and released by the Perpetual Foundation, one of the largest Trust Managers in Australia with over 450 charitable trusts on its books.
Called Views of leadership and management in the Australian social economy it identifies a series of opportunities and problems within the Not for Profit sector which it describes as being larger and more complex than most people realise.

The report reveals many significant issues and challenges, including:
– Resource wastage due to competition, lack of cooperation and industry structure
– Underdeveloped accountability, transparency, solvency and governance
– Lack of advocacy and the sector’s generally reactive stance
– Misalignment of interests
– Misunderstandings arising from ambiguous use of language

The report says there is a general lack of cooperation and transparency in the sector.
This behaviour is driven by real and perceived competitive threats created by funding
arrangements and lack of clarity over industry structure.

It says both of these forces are symptoms of the complexity of the sector and the lack of frameworks informing the design of competitive markets aimed at increasing efficiency and effectiveness and impact.

Most critical are the Reports findings on Not for Profit Boards.

Participants viewed members of boards and governance of the sector in a very negative light.

According to the participants, the members of Social Economy boards:
– were inferior (especially volunteer members) in strategic planning and financial management skills both of which participants noted "were the cornerstones of accountability)";
– occupied their positions because of political influence external to the organisation;
– exhibited the following characteristics or attributes: self-interest driven, poor skills, involved in petty issues, holding unrealistic visions, personality driven, and interfering with management;
– lacked appreciation of their legal responsibilities;
– did not have the right skills set anyway;
– had little understanding of how they can add value;
– interfered and intervened in the responsibilities and roles of managers;
– were immune from education and training and learning about modernized boards and their changing responsibilities in a contemporary [social] business organisation;
– tended to lack good relationships with CEOs;
– were generally inefficient in fulfilling their responsibilities (especially those who were "after- hours" board members);
– limited their time in decision-making, policy directions and development ostensibly because of lack of time;
– had (as a consequence of the above) a limited presence in the social sector organisation on whose board they served;
– represented both an asset and a curse for the Social Economy;
– a potential and in some cases real source if not cause of frustration in many Social
Economy organization;
– were self-serving in that some boards and their members were exempt from scrutiny because of their long-serving contribution to society;
– were an "administrative necessity";
– were incapable of delegating responsibilities;
– were ineffective in dealing with Governments at all levels (particularly Federal) who were seen to be imposing unrealistic performance standards (for volunteers); that is, imposing greater regulation on organisations.

The report says these views may be considered damning in anybody’s language. There was indeed a great deal of discomfort about boards and governance in the sector by sector members themselves.

Over 1,300 survey respondents and 55 focus group participants from Not for Profit, for-profit and government organisations contributed to the project.
Head researcher, Hugh Morrow of the Social Economy Executive Education Network addressed leadership and management in social welfare, medical research, culture, sports, education and community development.

The report says its interpretations are not intended to be critical of or negative about the social sector and its members. It says that during the conduct of the research it was evident that enormous social good is achieved by sector members in the face of significant challenges.

But it also recognised that there is much room for improvement.

Head of the Perpetual Foundation, Catherine Baldwin says the resilience and creativity demonstrated by individuals and organisations in the Social Economy is evident throughout this research.

Baldwin says this represents an impressive range and quality of services provided by the Social Economy to communities across Australia. One of the great benefits of this research project has been to stimulate discussion and bring together all players within the Social Economy, to build understanding and cooperation.

She says any important questions and issues are identified and analysed in this extensive report, which form an agenda for further research and discussion. Of particular relevance is the underdeveloped practice and standards of governance in the sector.

Governance is profoundly important in that it touches on questions such as "What is our mission and strategy?", "How do we define and measure success?", "What is the right board composition to help us deliver success?", and "What do we do if we fail?".

Perpetual’s observation is that Boards must answer these questions if they want to convince donors that they are making a positive impact in an efficient way. Good governance is especially important in the social sector, which is characterised by complexity and resource constraints.

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