The future for NFPs: a director is a director regardless of sector

In the spirit of calling a spade a spade, it’s time we call a director a director regardless of the sector they serve in because the future for not for profit organisations is especially contingent on reassessing the composition, strength and expectations of their boards.

Persevering with the notion that there’s a difference between the requirements and expectations of an NFP director versus those of a corporate director, and the associated inference that the NFP position is an easier and less demanding option, is becoming a risky assumption and one that no longer serves the community sector.

Both sectors require leadership and strategy equal to the challenges of a fast-changing and more complex environment, but it could be argued NFPs actually face a far more challenging situation requiring a higher level of expertise given the extra layers of complexity they face.

NFPs are not only facing more complex regulatory environments but will also have to continue to grapple with rising public expectations for transparency and accountability, and of course further funding and financial pressure.

To navigate all these areas successfully, NFPs need directors equal to those of any high-performing organisation.

Those NFPs who are yet to recognise the need to have appropriate skills, wisdom and experience on their boards are at risk of being left behind.

The changing scope of an NFP director

The skills base NFP directors used in the past in their decision-making may no longer be sufficient given the risk and compliance framework that their organisations operate within is no longer simple.

Cybersecurity is one example of this, as is privacy legislation.

This overlaid with the need to be innovative to remain sustainable is placing a heavy burden on boards, as shown in the most recent Australian Institute of Company Directors report into NFP governance and performance, which looked at the issues of culture, innovation  and cybersecurity in-particular.

The report says NFP boards will require skill sets able to keep pace with the demands and evolution of governance practices and that more of the same will no longer be sufficient.

The study showed more than 80 per cent of respondents undertake their governance role for no financial reward, and in fact, many also give financial and other donations to their organisation in addition to serving on boards.

These highly committed people have their heart in the right place and undoubtedly bring a level of valuable expertise to the table.

But the AICD report shows serious gaps in understanding of critical areas that pose a risk to the organisation and the directors themselves who face the same liabilities as their counterparts in the corporate sector.

Boosting the board

NFPs play a vital role in Australian society and their viability for the future is crucial.

However, as noted in the AICD report:

“In the context of declining trust levels from the broader community and a fraught regulatory environment, NFP governance is at a critical juncture. NFP boards must endeavour to overcome the complexity of modern governance challenges so that they can achieve their vision for the social good.”

To navigate through this juncture, there are several options NFP boards can consider, regardless of their size or budget.

Board Evaluations

All other areas of performance of an organisation are consistently evaluated, so why shouldn’t we, as the people tasked with the governance of the organisation, apply the same reviews on our own performance?

An annual board evaluation is the first point of call for directors seeking to perform to the best of their ability and to identify any gaps that need attention in order to not only improve performance but importantly, mitigate risk.

Paid directorships

Whilst the majority of smaller NFPs won’t have the budgets to spend on paid directorships, larger organisations can consider this, and in fact some already do have paid positions and others are renewing their board structures to include paid directorships.

For those larger charities, schools and aged care providers, attracting key leaders to the board with the skills necessary to fill the knowledge gaps may well require financial incentive.

For charities where members or donors may be critical of spending money outside of charitable works, organisations must adopt an education process to inform stakeholders of the need for leadership for a sustainable future.

External consultation and training

Regardless of the size of the organisation – although most useful for those with smaller budgets – strategic spending for external consultants to review, audit or provide education or training to directors in critical areas can help bridge some knowledge gaps.

This is especially useful for technical areas of cybersecurity, specialty areas of innovation and reputation, and culture strategy.

Directors cannot know the right questions to ask without the necessary background knowledge in the first place. Workshops, training or reviews can help fill that gap.

Refreshing governance structures

For those NFPs grounded in tradition and history, drawing directors and leaders from the membership base has many positives, but it can also be limiting when it comes to ensuring a diverse skills base and containing the risk of group think.

It is a real challenge to balance the need for change with the need to retain connection to the past and may require strategic shifts in organisational structure and constitutions to allow more flexibility for innovation.