NFP Boards Must Look Towards Strategic Stewardship
13 October 2016 at 8:28 am
The latest research from the Australian Institute of Company Directors (AICD) reveals that not-for-profit boards are spending too much time on operational issues at the expense of the strategic stewardship of their organisations, writes the AICD’s NFP sector leader Phil Butler.
There is possibly a stronger propensity for not-for-profit boards to get involved in operations than there is with other types of organisations. Such is NFP directors’ passion for the mission of their organisations, whether that be the local surf club or a world-renowned gallery, that they want to get stuck in and help out. This enthusiasm though comes at a cost. If boards are too involved in the day-to-day operations of an NFP, it can mean they have less time to turn to questions of the wider strategy of the organisation.
Setting strategy for any board is one of its most vital functions. To achieve their missions over the long term, it is critical our NFP boards feel that they have sufficient time to devote to strategic planning. However, the latest AICD NFP Governance and Performance Study paints a worrying picture of the capacity of directors to do the necessary strategic thinking and planning in an environment where NFPs’ resources are constrained.
Most directors surveyed for the study recognised the importance of strategy, but many reported their focus was still drawn too much to short-term or operational issues. While nearly all directors (90 per cent) had undertaken some sort of training in the last year, a minority (40 per cent) received training in strategic planning. Many respondents in the study considered a lack of skills and experience in strategy available to boards represented a major challenge for the NFP sector. Strategic planning and oversight of strategy implementation were the two most common areas directors named where their boards could improve.
Many of the directors in the AICD study described their NFP and board as having a culture of “survival”.
The attention of directors is taken up by short-term exigencies because many feel that they are constrained by the “hand-to-mouth existence” of their organisations. Many of the directors in the AICD study described their NFP and board as having a culture of “survival”. The reliance of their organisations on grants and donations leads to planning that is by necessity short term and risk averse, the NFP directors reported. The feeling that the future of their organisations is outside of their locus of control limits the ability of boards to properly focus on long-term strategy.
Policy changes are also putting a strain on the time and energy of NFP boards. The introduction of National Disability Insurance Scheme and Client Directed Care should both ultimately be of great benefit to beneficiaries of services, but adapting to the changes is a major drain on the resources of many NFPs and their boards. For a large number of NFPs it is the first time they will have needed to think about the marketing of their services. It will involve a complete re-think of many NFPs’ business models with the need to understand cash flow implications and have a much better knowledge of their unit costs. These are obviously key questions for boards of those NFPs, but again take time away from other important strategic issues that they could be addressing.
The way forward
There is no magic wand that will give NFP boards the capacity they need to address strategic issues. But there are steps the sector can take to correct the gap in strategic thinking. NFPs must be proactive in making sure in their succession planning they are bringing in directors with strategic planning experience. It is important directors also take personal responsibility for raising the standard of their board’s skills by extending their own abilities.
The sector as a whole needs to advocate for effective policy with more certain funding so that boards are freed up to concentrate on strategy. The AICD has called for five-year funding cycles from government for the NFP sector with a 12-month notice period of the termination of a contract. This would alleviate the anxiety many directors of NFPs feel about the financial sustainability and very solvency of their organisations. Under the conditions that exist now with much funding being short term, it is understandable that directors feel frustrated they can’t turn their attention to long-term strategy.
The most effective boards control their organisation’s future through strong and thorough strategic planning. Given how important NFPs are to the health of our communities, it is unacceptable that so many directors feel at the moment that they can’t give the time and attention they need to strategy. The first step to this changing is for the sector to face up to the problem and for boards to explicitly discuss how they can make strategy one of their main priorities.