Category Archives: Nonprofit Governance

Nonprofit Governance 04: Good Governance and Nonprofit Organisations

The general understanding among the public (I assume anywhere in the world) is that the standards of governance and accountability in the nonprofit sector is not in par with that of the private and public sectors. Ideally, given that nonprofit organisations depend on donations, public and/or government funding, it is imperative to maintain g a higher degree of accountability.

In the process of understanding what is good governance for nonprofit sector means, it might be good to list out what is poor governance look like…Through my experience and understanding I would like to list out the following as instances of poor governance: when we do not see an independent chair or board members who are not independent or no CEO performance indicators, Board meetings that spend more time on operations than on strategic thinking or when there is hardly any agreement between the board and the management, organisation extinction is regularly discussed and eternal complaint about lack of funds and issues regarding the deliverable.

How can we avoid such situations of poor governance and bring effectiveness to nonprofit governance? As we see most of these practices are linked to Board of Directors, lets first try to come up with a solution to make them more effective. In that regard, it is imperative to look at three main dimensions: Board structure, the competencies of its members and their behaviour. Board of Directors should be guided by proper policies, processes and procedures. Prior to providing the strategic direction to the organisation, Board needs to put themselves in order. Secondly, when thinking about members of the Board, they need to be a set of individuals who have knowledge, skills, abilities and a good network that will benefit the organisation in numerous ways. Finally, the board behaviours: their values, ethics, management relations etc.

It might be a good idea for the Board of Directors of nonprofit organisations also to introduce an annual performance assessment for themselves. I have come to understand that formal board reflection exercises have been increasingly used by many boards already in the sector. This actually seem to be both a norm and a practice in Australia. These evaluations will inevitably bring benefits for the organisation in a positive manner. They may actually reveal how effective is the working style of your board, how competent your directors have been and to think more and more about this, it looks critical if boards are to function at a high level to give strategic direction to an organisation. Most importantly, board evaluations allow the board to set the ‘tone from the top’ by sending a strong message to stakeholders that the board values a performance culture. If properly conducted, these evaluations will also help establish the individual and collective responsibilities of directors and identify where the board and individual directors need to enhance their performance.

These evaluations then will inevitably put the board on track to perform the role that is expected from them: strategic direction, CEO selection, monitoring and performance evaluation, monitoring the management of the organisation, risk management, compliance, policy framework, networking, stakeholder communication, decision making that leads to effective governance. Having established these processes and procedures from top to bottom, nonprofit organisations can provide incremental governance initiatives leading to good governance.

 

 

 

Nonprofit Governance 03: Constituent/Representative Board Model

The research on nonprofit governance further highlights the constituent or representative board model as another model of governance. According to this style of governance, there is a direct and clear link between the organisation’s board and its constituents. The Board of Directors (BoD) are also representing the constituents who also participate in policy development and planning. This participation benefits the constituents as they are actively engaging in and have a control over the policy decisions through their representatives in the BoD. However, due to the representative nature, the BoD’s under this model are generally large in size. The research highlights that they could be as big as 40 in some instances.

The clear difference of this model in comparison to the policy governance model is that while they both continue to maintain centralized decision making, this model has a value addition of a decentralized input which leads to a healthy operation. However, in most occasions the relationship between the BoD and the Chief Executive Officer (CEO) are not clearly defined and although the numbers are large the relationship between the BoD and CEO seems no different to the policy governance model. This also means that BoD sticks to its role of providing policy directives leaving the CEO to manage the operations within the limitations set by them.

In fact, if the model is working effectively it is also noticeable that there is a broad base of participation which gives meaning to the power of decentralization as this governing system allows the perspectives of constituents also be represented at the board level. Ideally if the system further had sub-committees which are action oriented, that will bring more effective governance avoiding most downfalls of the policy governance model. Given the large number of members in the BoD compared to a normal BoD the communication and coordination are expected to be effective. Particularly because there need to be a clear process of obtaining the input by the constituents.

This also bring the challenges of this model on the other hand. As communication is a key concern and a feature for the success of this model, there are pressures and demands for communication to be timely, adequate, consistent, clear and accessible. While the system of sub-committees on one hand will assure inclusiveness unless properly coordinated and managed it could also be the most unproductive system. Another frequent complaint within this system is identified to be the lack of focus on policy directives and broader concerns of organisational management and significant amount of time spent on constituency interests, leading the BoD meeting to another level of a management one.

My personal experience of this type of a model reminds me that conflicts among BoD members are natural and common. On the other hand, they are also not easily resolved and leads even to a level of damaging the board relationships. With representative interests and positions, there is a tendency to pursue self-preservation rather than shared interests.  The model therefore generally requires some form of written contract that needs to be renewed regularly to keep it in force.

Nonprofit Governance 02: Policy Governance Model

Governance context of the nonprofit organisations is an area of interest for most scholars who are interested in this subject. The next few articles of this series will therefore explore various governance models and analyse them.

Policy governance model is the most commonly used among the nonprofit organisations. This model focuses on single organisation with clear differences distinguished between the Board of Directors and the Chief Executive Officer. The role of the board is one of stewardship on behalf of its communities. For this purpose, they focus mainly on the vision, mission, values and strategic priorities of the organisation. They further ensures the responsiveness to community stakeholders and empowers staff to carry out the mission within established limitations.

The Chief Executive Officer (CEO) on the other hand is expected to provide operational leadership in managing the organisation and ensure the fulfillment of its mission. The Board of Directors monitors the CEO and evaluates his performance based on the KPIs agreed upon. Within this clear demarcation of roles, the Board of Directors govern the organisation by engaging at a policy level and monitoring the key official who is in-charge of their implementation.

In order to ensure efficiency within this model it is expected to have clearly defined roles and responsibilities of the CEO and the Board of Directors. Secondly, accountability stands as another important feature. The focus on outcomes and results are expected to lead to increased accountability. An external and policy focus of the Board of Directors will connect them with other boards and stakeholders. The Board of Directors need to be satisfied about the leadership role they perform in order to empower and support the CEO to efficiently manage the operation. The Board is expected to engaged in the system by scanning the environment, becoming familiar with the “big picture”, trends in the sector and entering into strategically important partnerships for the benefit of the organisation. This leadership and networking role of the Board will facilitate ensuring adequate resources and make the CEO’s role in fund raising more easier towards accomplishing the organisational mission.

While this model has been commonly used by the nonprofit organisations, they also identify this as a more familiar and comfortable framework of governance. However, this model also faces few significant downfalls. Board and staff relations are put in a vulnerable and disconnected position where there is no space or opportunity to build productive working relationship between the Board and staff. The staff may often mistrust the Board’s ability to govern them as their understanding on the operation is minimal and the Board will also feel disconnected from program and operation related work. This creates a gap between the policy makers, policies and their implementation towards achieving the expected outcome. The policy governance model further limiting the ability to embrace evolution and change as a result. The only successful way to address these issues is through a CEO who would be able to balance both the staff and the Board where the opportunity for both parties to interact will also be provided. However that has not been a very successful means of addressing this issue.

 

Nonprofit Governance 01: The Basics

My current research and online studies have largely focused on the governance of nonprofit organisations. Hence, I have actually decided to work on a series of articles on this topic as a means of reviewing the work I have been involved in for nearly a decade and also to understand the developments of the contemporary discourse on the subject.

Lets begin with the very basics, primarily by understanding what is meant by nonprofit sector and analysing how important is it in the world economic landscape today.

What do we have a nonprofit sector? Historically communities formed way before governments existed, people joined together to solve their problems. As the public and private sector grew and take a significant proportionate of the formal governing structure, it came to be realised that they are not able to or willing to resolve all the problems and concerns in the community. The failure of market and governments paved the way for the formal rise of the nonprofit organisations.

Their existence become more significant within the liberal system where market and government generally tend to ignore the unpopular issues among the communities. Nonprofit sector therefore have a niche market where they can help those with interests not large or popular enough to be of concern to the state or profitable enough for the markets.

What do we call the nonprofit sector? They are variety of terms used as a third sector of the economy including, social sector, social economy, civil society, non governmental sector and many more.

What types of organisations do fall into this category? They are mostly established organisations (incorporated) considered to be private and not controlled by the government. They are also organisations that do not share profits with the owner but invest in the mission instead. Generally management or employees of these organisations have a higher representation of volunteers.

How big is this sector by today? The nonprofit sector is large and diverse in terms of the numbers, types and sizes of the organisation. In the US nonprofit sector accounts for 5-10% of the national economy. Compared to national economies, the global nonprofit sector is equal in size to the 8th largest economy in the world.

As a sector of the economy where does the nonprofit sector fit in, particularly in relation to the public and private sector? One way to think is along the public private goods and services. Nonprofit sector that falls in between these two are diverse in nature, exempted from taxes, does not distribute its profits among members with self-governing volunteer boards. These organisations serve not only the niche communities but also the public and private sectors.

In addition to the use of significant number of volunteers, these organisations also depend mainly on government funding, gifts and donations. In Australia almost 50% of the revenue for the nonprofit sector organisations are generated through gifts and donations.

Role of these organisations are also another key aspect to look into. Their roles mainly include, influencing public policy and policy makers (advocacy role), providing public and private goods and services (service provider role), organising and empowering community through action (community development role), informing and resolving complex issues by working collectively with government and other actors (problem solving role).

Handful of Elitist NGOs in Sri Lanka comprising of a ‘civil society’ hinders democracy

The dominant western theories constantly support the existence of civil society as the most crucial aspect of a democratic society. It is accepted that the contribution of civil society organisations in general to democratic well-being is significant. Civil society organisations are further assigned with a mission of counter-hegemonic action for a better democratic consolidation (Gramsci, 1971).

 

In fact, in the context of Sri Lanka a small fraction of elitist society engaged in non-government organisations is understood as the ‘civil society’. Consolidation of power in a handful of elitist people actually damages the democracy in this way. This is a reality in the absence of the civic consciousness of the people in the state.

 

Michels (Michels, 1971) points out the elitist critique is still a significant concern about civil society because the oligarchic tendencies are latent within almost all of the organizations and the renowned jeopardy still exists because certain organizations may find the chance to consolidate power, increase their popularity and start to damage the ongoing democracy, when tend to be a latent but potent characteristic of civil society. In that sense, it is interesting to know that both of the controversies that civil society in Sri Lanka undergoes at the moment are rather institutional issues than the ideological ones where the so called demise of ideology lacks the ability to overcome them.

I would personally see these as controversies of civic consciousness, which could be identified as the understanding to live with other(s), where the other is assumed to represent a subject position defined in terms of culture (Bilgin, 2004). I assume that the lack of civic consciousness accelerate the apathetic culture in Sri Lanka, and decline the modernist belief in the self. We might live without a civil society of this nature, than having for the name sake and threaten the democratic structure of the state.