There is no "one size fits all" good practice
solution for effective governance of not-for-profits, but the
AICD's 10 principles are very useful guidance.
The Australian Institute of Company Directors has prepared some
principles and guidelines for NFP organisations designed to provide
a practical, sector driven, non-prescriptive framework to assist in
understanding what constitutes good governance practice having
regard to an organisation's particular circumstances.
Corporate governance is the systems and processes put in place
to control and monitor an organisation. Effective governance
structures allow governing bodies of organisations to exercise
their authority appropriately and provide accountability and
control systems commensurate with the risks involved.
Due to the diversity of NFP organisations, there is no "one
size fits all" good practice solution for effective
governance. Factors which may influence governance arrangements of
an NFP include:
the nature of its activities;
the regulatory environment in which it operates;
the type of NFP organisation and its governing
its constituent documents; and
requirement of grantors and funders.
Clayton Utz can assist NFP organisations in establishing a
tailored corporate governance framework and a compliance framework
for the Australian Charities and Not-for-profits Commission
governance standards obligations.
The 10 principles in the AICD publication are set out below. For
ease of reference, the terms "board",
"director" and "chair" are used in the AICD
publication. However, the principles are equally applicable to
other governing body structures of non-corporate NFP
Roles and responsibilities
There should be clarity regarding individual director
responsibilities, organisation expectations of directors and the
role of the board.
A board needs to have the right group of people, having regard
to each individual's background, skills and experience, and how
the addition of an individual builds the collective capability and
effective functioning of the board.
Purpose and strategy
The board plays an important role in setting the vision, purpose
and strategies of the organisation, helping the organisation
understand these and adapting the direction or plans as
Risk – recognition and management
By putting in place an appropriate system of risk oversight and
internal controls, boards can help increase the likelihood that
their organisation will deliver on its purpose.
The degree to which an organisation is delivering on its purpose
can be difficult to assess, but this can be aided by the board
determining and assessing appropriate performance categories and
indicators for the organisation.
A board's effectiveness may be greatly enhanced through:
careful forward planning of board-related activities; board
meetings being run in an efficient manner; regular assessments of
board performance; having a board succession plan; and the
effective use of sub-committees, where appropriate.
Integrity and accountability
It is important that the board have in place a system whereby:
there is a flow of information to the board that aids
decision-making; there is transparency and accountability to
external stakeholders; and the integrity of financial statements
and other key information is safeguarded.
The board has a role to play in enhancing the capacity and
capabilities of the organisations they serve.
Culture and ethics
The board sets the tone for ethical and responsible
decision-making throughout the organisation.
The board helps an organisation to engage effectively with
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
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