Is your non-profit suffering from regulatory fatigue?

Regulatory change can be managed, anticipated, and provokes opportunities for growth, dialogue and advocacy, writes Oliver May in this article offering advice on how NFPs that might be suffering from regulatory fatigue can respond to it.

The sixties produced some truly bizarre psychological experiments. At the odder end of the spectrum was one carried out by Charles Goetzinger, at Oregon State University in the winter of 1967.

As students shuffled into his classes in their winter coats and boots, they were surprised to find a student wearing a very different garment – a big black bag, with only their feet on display – sitting at the back of the class. While the other students were initially hostile to the bag and its inhabitant, over time they became used to it, and even friendly.

Goetzinger’s study is often used to highlight “mere exposure effect” – in which people prefer things they are familiar with. But there is an inverse lesson as well – humans don’t like change much.

We have certainly seen significant and rapid regulatory change in Australia in recent years. Many sectors have both had to adapt to sweeping new requirements, and further regulation seems inevitable.

The not-for-profit (NFP) sector is no different. A focus on safeguarding (and for international NFPs, terrorist financing) follows hot on the heels of scrutiny around fundraising, political advocacy, and a long line of other issues. Both institutional donors and regulators have tightened their requirements, while the media seems poised to challenge infractions.

In this context, the symptoms of regulatory fatigue are numerous. NFPs experiencing it might exhibit a sense that compliance issues are eclipsing delivery, or tend to see new regulatory developments as threats. They might have the uncomfortable sensation that obligations are growing while the budget to meet them is not, and descend into a “just tell us what to do” style of engagement with donors and regulators.

So how can NFPs that might be suffering from regulatory fatigue respond to it?

Firstly, recognise that regulation is never static and will continue to develop. NFPs can reduce stress by creating an ongoing procedure for identifying and documenting relevant regulation, mapping those obligations to their operations, and keeping them under review.

For small NFPs, this might be as simple as a table or spreadsheet. For large and complex organisations, it may require a dedicated software platform. This approach is known as an “obligation registry” and whatever the size and nature, there should be both an owner for it and board visibility of it.

Secondly, anticipate future change. Modern regulation exhibits trends. Expect increased focus on transparency, being able to evidence risk-based approaches that inform proportionate systems of management and reporting, and protecting people that come into contact with your organisation.

The report of the royal commission into misconduct in the banking, superannuation and financial services industry gave us an insight into the six principles likely to be at the forefront of regulators’ minds: That regulated entities obey the law, do not mislead, act fairly, provide services that are fit for purpose, deliver them with reasonable care and skill, and when acting for another do so in their best interests.

If an NFP takes a risk-based and reflective approach to its governance, management and operations in this context, it may save itself not only later cost, but reputational damage.

Thirdly, NFPs need to make sure they engage with their regulators, institutional donors, and those to whom these stakeholders listen. Legislation, in particular, is a blunt tool and not always well-drafted. It is possible to influence and shape the design and scope of all these requirements. Potential regulatory change creates an opportunity for NFPs to educate donors, regulators and the public.

This kind of advocacy can be very effective. In the UK recently, for example, the international development peak body Bond spearheaded a broadly successful effort to have the government’s Counter Terrorism and Border Security Bill amended. Here in Australia, NFPs have a regulator in the ACNC that does listen, and there are well-respected peak bodies supporting this dialogue with whom NFPs can engage.

Finally, recognise that, in a sense, growth in regulation represents a milestone in the development of the not-for-profit sector. The need for it is indicative of a big, vibrant sector delivering important services to people who need them.

Increased investment in compliance may be a challenging message for such a cost-sensitive sector, but regulation does serve a purpose. It helps to secure and retain public trust, and safeguards the interests of beneficiaries.

Regulatory change can be managed, anticipated, and provokes opportunities for growth, dialogue and advocacy. NFPs should not fear Goetzinger’s black bag – but engage with it.

About the author: Oliver May was previously the head of counter-fraud for Oxfam GB. He is now a director in Deloitte’s forensic practice, where he helps NFP, corporate and government clients to manage integrity risks. Oliver’s book, Fighting Fraud and Corruption in the Humanitarian and Global Development Sector (Routledge, 2016) is out now, and a follow-up book for NFPs on managing terrorist financing risk is out next year.