August 14, 2012

All on board: The people dimension of non-profit governance

How can a board ensure it has the right people working together in the right way to meet its responsibilities most effectively?

The world of non-profit governance is about to change. As of July 2013, the new Australian Charities and Not-for-Profit Commission (ACNC) will require registered organisations to: keep records about their operations and finances; provide the ACNC with operational and financial information about the organisation; and meet certain governance standards – including duties and procedures for people on the governing body of a charity.

With over 600,000 non-profits in Australia, there is both a tremendous need and strong competition for capable people on these organisations’ governing boards. We anticipate that reporting requirements will likely become more comprehensive in the future. So it is timely for boards to reflect fully on how well they are positioned to meet the demands of their responsibilities.

Ways in which boards can engage in self-reflection

Boards should conduct regular reviews of their own performance every two to three years. Without these, a board risks becoming ineffective, irrelevant, tired, or in worst cases dysfunctional.

Board meetings are generally dominated either by transactional issues, getting through the agenda of business-related items, or compliance issues, which is to say, how to stay out of trouble. All too rarely is time set aside for the board to review its own performance, look at its decision-making processes, consider its composition or simply brainstorm how it could do things better.

Developing an effective board begins with self-reflection. Capability audits are one way for a board to engage in self-reflection.

A capability audit comprises a three-stage process:

  • establishing the skills and experiences which will be required on the board to achieve the organisation’s strategic aims over a specified period (usually two-four years)
  • identifying skills and experience gaps in the current board
  • clarifying the recruitment process the board can use to fill those gaps.

The organisation is then encouraged to recruit board members only into those gaps.

There are other ways that a board can engage in self-reflection. For example, the board of an environmental education organisation we worked with was struggling to make best use of the board’s limited time to the frustration of some members. We attended three consecutive board meetings and conducted a debrief with board members at the conclusion of each, reflecting on:

  • what had happened in the meeting
  • where time had been spent unnecessarily
  • how to improve future meetings.

Following this, the board agreed that, in rotation, one member would be responsible for ‘watching process’ as well as ‘content’ and providing their feedback at the end of the meeting. As a result, the board made better use of its time and more effectively guided the organisation along its strategic plan.

Annual board retreats are a common, and potentially very useful, opportunity for members to engage in self-reflection, both individually and as a group. The key is to ensure that time is set aside for this, and that discussion is facilitated in a way that enables people to be honest and open with each other about how things are going. This is easier said than done where there are personal politics at play. And yet, it is exactly in these cases that a quality process of reflection is most often needed.

Getting the right people on the bus

While regular processes of reflection and review will help the board consistently improve its function, a board also needs to have the right mix of skills and experience so that it can meet its current and future governance challenges. Many boards have members who participate because of their history with the organisation, their personal relationships with other board members and staff or their commitment to the cause. Laudable as these reasons are, they do not assure that the board has the skills and experience it needs to thrive.

Identifying ‘the right mix of skills and experience’ is not a trivial task. There is, however, a relatively simple process that enables a board to come to an agreed, objective understanding of the attributes it requires. This process considers three dimensions of a board’s work: core business, functional factors, and organisation-specific factors.

To elaborate on these three dimensions, let us look at our work with a mid-size non-profit organisation, we will call EduGrow1.

EduGrow delivers educational support programs in schools around Australia. It had recently adopted an ambitious growth strategy aiming to double its services by 2016. The board was questioning whether it had the necessary horsepower to drive the expansion so invited SVA Consulting to undertake a capability audit to gain greater clarity.

Core business – What are the essential activities that the organisation delivers and for which there should be some coverage on the board?

EduGrow’s core business is the delivery of services in schools, so education is obviously a key knowledge area. The board broke this area down further into ’professional’ – people with teaching involvement as either a practitioner or an academic; and ‘political’ – people with experience at a policy or bureaucratic level. This process highlighted the fact that they had no coverage at the political level, which was deemed important in achieving the organisation’s growth targets.

Fundraising was another activity that was essential to EduGrow’s business model and had historically consumed considerable management time. Identifying fundraising as ‘core business’ helped the board and management give it the appropriate emphasis.

Functional factors – What specific skills, knowledge and experience would it be advantageous to have on the board to support the core business? This is where professional backgrounds in particular areas can become relevant.

EduGrow’s board identified three factors to which it had not previously given specific consideration:

  • Legal/governance/risk management, which would be important given the increasing complexity of the organisation associated with the new strategic plan.
  • Human resources, a skill set which would become increasingly relevant with the expected growth in staff numbers predicated in the strategy.
  • IT systems, which would be vital to the online delivery component of the growth plan.

Organisation-specific factors – What personal qualities, philosophies and attitudes are important to the organisation? These can include diversity of gender, ethnicity, age or background; commitment to the causes the organisation stands for; and resonance with the social need the non-profit is seeking to address.

EduGrow’s board identified a number of personal qualities that it considered to be essential both in support of the organisation and in promoting a healthy board dynamic. They included:

  • Having a passion for and belief in the organisation’s cause, and having personal values compatible with those of the organisation.
  • Being appropriately networked in their life outside the board, and being prepared to share those networks for the benefit of the organisation.
  • Achieving appropriate diversity in age, geographic location, ethnicity and networks of board members.
  • Being prepared to accept suitable tenure restrictions as part of the terms of their appointment, so as to facilitate succession planning.

Having identified these elements, board members then ranked the importance of each one, in terms of high, medium or low, and assessed the extent to which each element was already represented on the existing board. Using this approach, we developed a matrix of the skills, experiences and personal qualities that the board identified and valued. Any element that ranked high in importance and low on coverage became an obvious priority area for recruitment of new board members. For an example of the product of this process, see Appendix: Board skills matrix for EduGrow.

Getting people off the bus

Considering the stage an organisation has reached in its development is relevant when reviewing the make up of a board. In their start-up phase, non-profits will often, and understandably, welcome any willing contender onto the board. This can entail the corralling of good friends, relations and professional colleagues whose willingness to serve may exceed their suitability for service. Once an organisation gets through start-up and into consolidation or enters a phase of rapid growth, new skills and experience is usually required.

For example, we worked with an organisation that delivered services to homeless people. At a key point in its journey, it decided to lobby the government to achieve substantial change in the laws that affected homeless people. Two highly experienced and prominent lawyers were brought onto the board to assist with this. Once this was achieved and the law amended, the lawyers’ usefulness on the board was questionable. Instead the board needed people with experience in logistics, however there was no space for new members without the board’s size becoming unwieldy.

Removing people from boards – and adding new people to existing boards – can give rise to personal politics. Board members are people, and many of the obstacles to successful governance can be put down to personal and relational factors. Voluntary service on a non-profit board is usually, and importantly, driven by a passion for the cause. The downside is that this ardent enthusiasm can make it difficult for a board member to accept that their service has reached the end of its usefulness.

At a workshop we ran with chairs and CEOs of non-profits, a straw poll among the group revealed that the longest serving board member had been on the board for 38 years.

While an audit process will not … resolve the personal politics inherent within a board, it is a trusted way of bringing issues to the surface.

With one organisation whose board sought an audit, we discovered that a marriage breakdown had created a rift between the Chair and the founder, his former brother-in-law, who as CEO was also on the board. The other members were lined up on either side of the relationship. The issue became known to us through confidential conversations with each board member. The members also made it clear that this situation was severely impacting the board’s performance. Our recommendation was that, given reconciliation was unlikely, either the Chair or the CEO would have to leave. In this instance, the Chair decided that it was most appropriate that he step down.

Another cause of personal politics is when the non-profit founder strives to maintain the purity of the organisation’s mission as they perceive it. Known as ‘founder syndrome’, this can lead to the person feeling threatened by the recruitment of independent board members. One founder we worked with openly expressed a desire to maintain “control” of the organisation, and was worried that appointing outsiders, even skilled ones, would jeopardise that aim. At the time, board members were friends of hers, rather than aligned with organisational needs. As a result, the board was ineffective leaving the founder to run the business unsupported and without being held to account. Although identifying and securing ongoing funding was a core need, the board did not have people with the networks or skills to support the organisation in this way. Following our capability audit, the board appointed independent board members aligned with core business activities which strengthened some critical external relationships. We also suggested that an independent chair be appointed to provide strategic oversight and direction, however, the board felt that they weren’t ready for such reform, preferring a staged approach.

While an audit process will not automatically or necessarily resolve the personal politics inherent within a board, it is a trusted way of bringing issues to the surface. Auditing the board composition and carefully considering core business, functional factors, personal factors and the life stage of the organisation is a way of achieving an objective description of board member requirements.

How to position an organisation for success in the war for governance talent

Having determined recruitment priorities through the audit process, the final step is to recruit new board members to fill the identified gaps. We have identified a number of simple, practical actions that make the recruitment process more effective.

Firstly, boards must be clear on who has the responsibility for identifying and approaching potential candidates for appointment to the board. This is usually best done by granting specific authority to the chair, or to a new or specially-convened committee of board members. Importantly, we suggest having the sales pitch ready:

  • Why we want you
  • What we think you can bring to the board and the organisation
  • What’s in it for you if you join our board, and
  • Why you won’t be exposing yourself to undue liability or damage to your reputation in joining us.

Last year, we worked with the board of a non-profit seeking to support the development of Australian writers. It was chasing a high quality, high profile candidate for its board, but the candidate was receiving one message from the CEO and another from the Chair. The candidate was understandably concerned about the professionalism of the board they were being asked to join. Only when the board became united in what it wanted and one person was given clear responsibility for engaging the candidate was the situation salvaged.

As the search to fill the gaps ushers in new board members, existing board members will most likely be required to leave.

Secondly, boards should consider including a clear provision that defines the appointment’s term in the organisation’s constitution or governing rules. This will minimise the difficulties of a less than successful appointment. Introducing an appointment term also serves as a useful break point to address instances where a long-serving board member fails to notice their value to the board has expired.

Thirdly, attend to the basic, administrative tasks associated with recruitment. A letter of appointment should be prepared for each person invited to join the board setting out the board’s expectations of new members and the factors which the board member needs to be clear about. Be armed with a summary of the directors’ and officers’ liability insurance policy which any quality candidate will want to look at. Develop an induction program to help bring a new board member up to speed as quickly as possible.

As the search to fill the gaps ushers in new board members, existing board members will most likely be required to leave. This can be a challenge, especially if it involves the forced removal of a board member and can be unsettling and even divisive in an organisation. For a non-profit structured as a company limited by guarantee, for example, a board member may only be removed by a complex statutory process involving a general meeting resolution. As mentioned, one of the most effective tools for ensuring that board members do not stay on the board when they are no longer useful is the inclusion of a term of appointment in the organisation’s constitution.

An education-sector board we supported found it only required a relatively informal review of the skills needed – skills which had changed considerably since the board was established. The review gave the Chair an opportunity to have a more focused discussion with two board members whose skills were no longer really relevant to the organisation’s operational aims. These two board members eventually self-selected themselves off the board.

There may, however, be times when there is no prospect of an agreed departure for a non-performing board member and no constitutional break point. The decision then becomes a pragmatic one about what will cause the organisation the least harm, the effect of a forced removal or the consequences of tolerating their continued presence.

Dressed for success

Regular board reviews are essential; boards should conduct reviews of their own performance every two to three years as part of standard operating procedure. If not, the impending ACNC reporting requirements are a useful pretext for a board review in the next 12 months.

There are many ways a board can engage in self-reflection. This article has focused on capability audits as a formal, structured process for objectively identifying the suite of skills and experience an organisation needs at a particular time in its history. We have found that the process itself facilitates rich conversation about where the organisation is at and where it is going, as well as informing deliberations about who should remain on the board and who should be recruited.

It is often claimed that the chief resource of any organisation is its people. While this is a cliché, it is surely applicable to the hundreds of thousands of Australians who serve on non-profit boards. Getting the right people, at the right time, and getting them working in the right ways is an ongoing challenge for every board. It is a challenge that must continually be met, to ensure the organisation thrives and is achieving the social mission for which it was established.


If you’d like to know more, contact us on consulting@socialventures.com.au

 1 The name has been disguised to preserve the privacy of the organisation involved.